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The IEA SPR release: open thread
Posted by Euan Mearns on June 24, 2011 - 11:00am
Drowning in debt, the OECD did have one little nest egg tucked away in the form of strategic petroleum reserves (SPR). Yesterday the International Energy Agency (IEA), an OECD organisation, decided to raid these meagre savings in order to try and keep the global growth party alive. The recognition that high oil and energy prices were threatening a weak and faltering recovery is an admission by the OECD that high oil prices were threatening recession.
The decision yesterday to release 60 million barrels from strategic reserves over a 30 day period sent already weak and falling oil prices through the floor with Brent futures down 8% at one point. This represents 4% of total OECD public stocks of crude oil and refined products that totals 1547 million barrels.
Many believe that the $900 billion of quantitative easing in the USA has underpinned the most recent commodities spike. Ask the question where the global economy would be right now without QE? Rising demand colliding with inelastic supply is the technical cause of high and volatile oil prices. The logical solution is to boost supply and reduce demand. Yesterday's action by the IEA is designed to do the exact opposite of that since the aim is to reduce price. This will boost demand and hurt high cost oil producers in the OECD.
My own view on the OECD economies is that anaemic growth in many countries has likely already turned negative mirrored by already falling oil prices. Higher taxes, reduced public spending and the burden of high energy prices lie at the heart of this problem. But there seems no way out. OECD consumers also face the ever present risk of higher interest rates which must rise some day when buyers of government bonds demand higher rents for growing risk of default. Countries like the UK require strong economic growth to repair their public balance sheets to avoid the risk of default. This growth requires growing supplies of cheap energy. 60 million barrels of oil, 18 hours of global consumption, is the latest sticking plaster to be rolled out.
This is an open thread to gather opinion on yesterday's move by the IEA.
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I think the SPR release was done to help fix the economic problems that many OECD members have. I wrote a post about this on Our Finite World about this called Release of Oil from the SPR – Desperately Trying to Fix the Economy.
Great post and graphs, Gail. Desperation seems to be an apt description when one looks at the economic/energy/political situation systemically, and, as I posted yesterday, this has all of the hallmarks of a Hail Mary pass. Since the home team is down by multiple scores, one can only deduce that the design is to save face. I can't believe these folks actually think that they can salvage the growth game. The playing field is in tatters, the rules corrupted, and the officials have lost any sense of fairness. Expect a new game soon, with different rules, played in the dark for most.
The fans have already started rioting in the streets.
Obama's trying to get re-elected.
I don't know why, I wouldn't want to be Capt. of the Titanic as it's sinking. Hubris, I guess....
If so, it seems like pretty bad timing. Is he going to keep releasing oil for the next year and more? Do all those other countries releasing oil reserves want that desperately to help fix an American election?
As Gail and others have said, this seems to benefit the EU most notably at this point.
I guess I was wrong. I am reading Gail's piece right now "Release of Oil from the SPR – Desperately Trying to Fix the Economy."
It's not bad timing at all. You're forgetting about the time lags between oil price changes and effects in the rest of the economy. The idea isn't to have low oil prices for the election, it's to have a stronger economy a month or so before the election. The best they can hope for at this point is an economy not in recession next summer, and if you want to head off a recession, this is a pretty good time to do it.
Right now, we're all waiting for Qaddafi to give it up. The Europeans in particular really want the guy gone. But the loss of Libyan oil is increasing Brent prices, so it effects everyone. The question isn't why the Europeans would want to help the US President, the question is why the Europeans would want to help the Europeans. Each actor from the OECD releasing oil has their own reasons, both political and economic, to want to release now. But in all cases they're most likely thinking of it as a temporary measure until Qaddafi's gone.
By the end of the summer, they're thinking Qaddafi will be gone, we'll be through the high demand period, maybe the Saudis will have come through with more supply, and demand will be lower due to slower economies, so prices will be lower of their own accord. Even if those don't happen, we'll have had a month of lower prices that will act as a stimulus, which the US and Eurozone economies could use now.
Excellent connect-the-dots summary.
Not much stimulus out of 18 hours of world consumption.
What do 'they' do for an encore?
The Europeans do indeed have their own reasons; high prices lead to hostile motorists. Preemptive pandering is the name of the game. Easing the threat of road closures and strikes in tense times makes sense.
If drivers are riotous in China, why not Spain?
http://www.zerohedge.com/article/china-inflation-and-wage-protests-sprea...
"why" Money and power. Which are good to have in good times and even better to have in bad times.
Maybe he's operating onn the greater fool theory. If he loses, we will get a much greater fool imposed on us. So in that sense, I'm hoping he's successful, cause the alternatives appear stark raving crazy.
I believe it was Kunstler who said the U.S. would eventually elect lunatics. Sadly, it seems more true everyday.
So who will be the Caligula to Obama's Tiberius?
Tiberius? that was a long time ago. bush/clinton/bush/obama is more like a repeating sequence of nero and caligula, with an occasional aspiration, perhaps to imitating a carcalla from time to time. One might be more likely to consider eisenhower as tiberius..
of course, the analogy, which works rather well in the big picture, does not translate
so well for this kind of thing, the sequence is not the same and there's not reason it
should be. Keep focused on the big picture, though, and it's like you have the script right in front of you, reading along.
Desperate is the right word, Gail. More of such attempts will follow.
The Saudis can't pump more to offset Libyan losses, as shown in graphs of my post on the recent OPEC meeting
9/6/2011
A disunited OPEC can't control upward trend of oil prices
http://crudeoilpeak.info/a-disunited-opec-cant-control-upward-trend-of-o...
And look at the oil production profiles in Libya, by Richard Miller from the Energy Institute, with some calculations on cumulative production and producable oil until 2040
24/6/2011
War overshadows peak oil in Libya
http://crudeoilpeak.info/war-overshadows-peak-oil-in-libya
I agree with what you've written.
Why kick the can down the road? To sweep Lybia under the rug? To preserve Saudi Arabia's ability to (possibly) bluff? To keep Iran from benefiting from the Lybia spike? To make the next spike worse by hampering investment and leaving the US without an SPR? Ech..
Great post all-around. And always good to hear "if high cost oil is what sinks the economy, high cost green energy is of very little help." Of course it's nothing new, but it's one of those things that needs to be repeated constantly lest people (me, at least) forget and go off into a fantasy-world.
Thanks!
Then perhaps trying to live in a fantasy economy, that depends on cheap, no longer available, energy to function, is the real problem!
Assuming we all stop being delusional, we might finally build an economy that is based on the realities of the physical limits we must live with.
May the captains of the current economy go down with the ship and hopefully a few of us can take to the lifeboats... Oh, and if you don't want to pull your weight by manning the oars, and if you try to sneak a bit more than your fair ration of the drinking water, the rest of us will be forced to toss you to the sharks. Hopefully they won't get indigestion.
Yes, we know that we are running out of oil but we must use more oil to grow the economy which will use even more oil that we are running out of. The primary problem with our economy right now is that it does not provide sufficient employment and, for millions of people, it does not provide enough money to, you know, live. We have had continued growth in manufactured goods but, at the same time, we have had decreases in employment. Producing even more goods will not solve the problem because manufacturers have found a way to decouple manufacturing from employment.
The only "solution" on offer is even lower taxes and massive decreases in spending to somehow free up the animal spirits of the capitalist economy to do what it is clearly not doing right now. But nothing is being done, not even that, because our government is frozen in place, paying 535 congress persons to do nothing.
So, in spite of all this, the only action being taken is this desperate action of providing more oil for an economy that clearly will not need the oil after congress gets through with it.
It would seem that virtually no one gets the fact that this economy's ability to provide decent jobs for a middle class economy is virtually dead.
As you imply, the ship is going down and the current political system and level of deep thought is not equipped to provide most people a decent standard of living. If one believes that this economy cannot be successful without continued, increased injections of oil, then it truly has reached the terminal stage of utter desperation and hopelessness.
With this release of oil, the President has, in effect announced that America is doomed going forward. This would only not be true if he truly believes that oil production is headed upward and we are just in a little temporary rough patch that we can paper over with an SPR release.
Bingo.
Many have been saying this for years, but we are disparaged, labeled as negative and even unpatriotic.
Even here on TOD, a site which leans toward a certain rational doomer position, there are those whose attitude is "America, love it or leave it."
One caveat is that I don't know what Obama believes. I also don't trust him to tell the truth even though I voted for him. I recently read the book Griftopia and it appears Obama flat out lied about what he was going to do with the health care bill. He also failed to follow through on climate change. God knows what will result from these negotiations with the Republicans on the debt ceiling. He also didn't have the courtesy to come out and personally explain to the American people what the hell is he is doing with this SPR release. He seems to be in hiding, like Bush, in that he seldom does press conferences.
Being from IL. I took it upon myself to re-name President O'bama, O'Bummer. He shall be
known only as O'bummer with his many failures to date.
"Obama flat out lied about..."
Keeping in mind that, like Bush/Gore a few years back who competed in their campaigns over who would spend the massive Clinton Surplus better, Obama's campaign started out in a pretty decent economy (to all appearances). It was well into the primaries before things turned ugly, and the economy was pretty much in free-fall while he was being sworn in.
As the circumstances had entirely changed, some change in priorities was only responsible.
Most of the current economic problems of the US would be solved if we returned to the tax structure before Reagan. We have a deficiency of demand. Long term problems are more intractable and another issue.
Markets oscillate between fear and greed. Maybe that is true for populations of people or other creatures too. During times of fear, it is a fight for survival, negative things keep happening, endless problems occur, cascading failures, costs that can't be covered. During times of greed, it is the opposite: easy money, food everywhere, everyone greedily expanding.
We as living creatures are incapable of living without being at one extreme or another, I fear.
Maybe if we transition off oil after many years we might have a more stable pattern. Not now.
http://af.reuters.com/article/energyOilNews/idAFN0124677220110601?pageNu...
This link is to an article about salt carverns at the SPR needing to be emptied, because they not longer meet the specs. I remember a local article in a South Louisiana news paper explaining the either the administration could sell oil in the open market or they could rent cavern space from private land holders locally. I know the numbers from the article doesn't match up but there may have been more problems at the caverns than they previously knew about.
If this release was needed for due to the caverns needing to be emptied for structural reasons, Obama is very slick for taking credit for it although he should have anounced it a couple of months ago.
Hi Gail, I think this release is only about economics. However, I think this is a ploy to sell hard assets for dollars giving the treasury cash to extend beyond the debt ceiling Aug. 2 self defined deadline.
Why would the DOE sell Louisiana/Texas sweet crude (which is a small fraction of SPR)at 112$ barrel, when spot sweet prices are already 92$ a barrel? This makes little energy policy sense and only short term bankruptcy sense. Any thoughts on this?
Some OPEC members are unhappy
However, China is happy. Buying opportunity.
The Dark Side of the OECD Oil Inventory Release
From the WSJ:
Wow. Tanaka says this is just to fill a gap while we wait for KSA to pump more, of course. That spare capacity that takes, uh, 30 days to come online by definition, right? That, and/or they're all waiting for QKaddaffffi to keel over. Would be quite something for this to devolve into a market intervention no-holds-barred cage match.
One of the unintended consequences of using 60 million barrels of reserves might be China's adding 60 million of oil to their reserves as their crude oil import needs expand.
I think that this represents the governments latest efforts at price control for oil. I think that other efforts are being made surreptitiously; however, price controls in the face of a shortage can only lead to one thing:more shortages, and more exports overseas where people can get higher prices. This will lead to an acceleration of our net oil import drop.
This is what price controls have accomplished so far:
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTNTUS2&f=W
less energy in this econonomy means continued slowing.
The only true solutions to the current crisis are either PERMANENTLY increased production, or massively decreased amount of oil use. I'm afraid that the second option is coming whether we like it or not.
I can't see how releasing 60 million barrels will have any substantial positive effect on OECD economies. Oil prices will temporarily drop, exploration will slow down somewhat, and Americans will take the opportunity to buy a new gas guzzler. Then what happens after the 60 million barrels have been burned up? Oil prices will rise, exploration companies will have lost a bit of momentum, consumers who bought a guzzler will have second thoughts, and the economies will tank again. The governments will then be forced to release another 60 million barrels. It's kind of like quantative easing, you can't live without it, yet you know you can't continue doing it.
Worse, oil prices may rise faster than before, like pulling back on a length of elastic when the other end is still moving away from you then letting go. At the very least the markets are going to really jig up and down as people try to make a profit off of it.
This is an appalling idea and highlights just how totally out of other ideas the governments are. Even when they "know" what needs doing. They aren't even backing it up with a another plan. It's just this sat on its own with a sprinkling of magical hope that something good will happen within the next couple of months.
Many people do not know the difference between the geological term for reserves and the more limited definition used to describe what is in storage, as in the strategic petroleum reserves.
Lots of discussion here The Oil ConunDrum
Joe Romm (Climate Progress Blog)
http://thinkprogress.org/romm/2011/06/23/252032/breaking-u-s-and-allies-...
suggests that the revenue from releases from the SPR should be used to fund development of clean energy technologies, as well as energy efficiency programs. This seems a good idea. Is it correct to assume that the government will be selling the oil? 30 million bbl at $80 a bbl is $2.4 billion. Any idea what will be done with this money. Does current law prescribe what must be done with it? (Sorry about the clunky link)
General Fund. Drop in the bucket. Buy votes.
Remember the release is from a group of OECD countries not just USA. The money raised selling oil at $80 / bbl will be used to buy it back at $120 / bbl at some later date;-(
That was the use I was afraid of.
But smart individuals, and especially large institutions, should be able to see that this will mean large increases in gas prices in the not-too-distant future, and could use whatever savings the derive from the temporary lowering of prices to prep as much as they can for the oil constrained future that is looming.
Of course, this begs the question of whether there actually exists any such smart individuals or institutions!
As we slide down the other side of the production curve, we will never find the right moment to refill the SPR.
I think this is like printing money. Once you start, it becomes extremely difficult to stop. Likely this move will be repeated, then repeated again, until the SPR is completely drained.
This REEKS of panic, especially after the Bernank's charming performance couple days ago.
I completely agree with you. It does reek of panic.
It particularly comes across that way due to its announcement only 1 day after Bernanke closed the books on continuing QEII. Didn't take them long to find another way to try and stimulate the economy. However, what's to stop OPEC from reducing exports to OECD countries to raise price? The release of 60 mb may be all for naught.
It seems so counter-intuitive for Obama to be doing anything and everything he can to get re-elected via all these hail mary passes designed to keep the ship afloat just a little bit longer, and for what? Who in their right mind would want to be at the helm of the good ship lolli-pop when SHTF via this continued net energy decline that will only get worse?
Exactly. The only logical conclusion is that the leaders who want to helm this ship are not in their right mind.
Sobering, isn't it?
Interesting choice of analogy. This is Socrates, from The Republic, Book VI. He describes society as a mutinous ship, where power is what matters, rather than what to actually do with it:
"Him who is their partisan and cleverly aids them in their plot for getting the ship out of the captain's hands into their own whether by force or persuasion, they compliment with the name of sailor, pilot, able seaman, and abuse the other sort of man, whom they call a good-for-nothing; but that the true pilot must pay attention to the year and seasons and sky and stars and winds, and whatever else belongs to his art, if he intends to be really qualified for the command of a ship, and that he must and will be the steerer, whether other people like or not-the possibility of this union of authority with the steerer's art has never seriously entered into their thoughts or been made part of their calling. Now in vessels which are in a state of mutiny and by sailors who are mutineers, how will the true pilot be regarded? Will he not be called by them a prater, a star-gazer, a good-for-nothing?"
I'm sure peak oilers will find that Socrates' parable resonates. It's worthwhile to remember that the philosopher and his students, for their part, lived during the decline and disintegration of classical Athens. It's somewhat comforting: this kind of sobriety has quite a long and noble history.
- Resid the Undergrad
Or maybe they are betting that they'll be able to buy that oil back at $40 by the end of the year...
Yeh, you could be right.
yes it would seem so.....
My sarcometer went haywire on Romm's piece - I'm not absolutely sure he was being serious rather than ironic. I imagine the SPR release will temporarily reduce the price of virtual barrels, the ones all sides of the histrionically babbling commentariat seem to focus on.
Hate Econ 101 or not, that price signal will communicate, "we kicked those wicked speculators in the teeth, problem solved." As the broader public receives the signal, they will likely shift spending (relative to where it would have gone) by some amount that will utterly dwarf a measly $2.4 billion. And it will signal energy suppliers that "we don't need it."
As to where the money will really go, likely into the general fund, one way or another. Some will undoubtedly end up as "stimulus" highway projects. That is, "we" will build highways and reduce the flow of fuel in all but the very short run (relative to what it might have been.) Yup, push hard in opposing directions - sounds like typical government to me.)
"we kicked those wicked speculators in the teeth, problem solved."
The admittedly cynical perspective I took on this in a reply to Jon Freise below was that the admin has inside information that another major slide in the economy was inevitable. This means that oil prices will fall, probably dramatically.
If the admin can show that it took a dramatic move early on that they can point to and claim that it had a major effect in bringing down the price of gas, they can at least crow about that, even while the actual economy is in the toilet.
I'm not sure they're that smart, but who knows?
As I remember the news during the Clinton administration SPR withdrawals are not sold, they are loaned out with the expectation that they be returned at some defined time in the future. This works out great for refiners, they get loaner oil today at high prices then give back when prices are lower.
Depends on the circumstances. This is an outright sale, which has happened before but loans are far more common.
DOE stated 112$ a barrel for sale Aug.
I find the timing particularly interesting as we are far from the all time high reached in 2008. Previously releases have followed one off disasters or significant events:
(1) Iraq’s invasion of Kuwait in 1990/1991.
(2) In 2005 after Hurricane Katrina.
This time the reason given this time is the loss of Libyan production.
This is surely an admission that the Saudis have no spare capacity to speak of. The official reason for the timing is the upcoming driving season, but I also sense that there is something that they are not telling us perhaps some present or near future disruption that they are anticipating.
Link to IEA question & answer session: http://www.iea.org/files/faq.asp.
It does seem weird, you would think they would wait until just before the next election cycle to do this. Maybe they think that this is close enough.
I suspect it could be linked to the ending of QE in 7 days time. Also, who is to say that the exercise is not repeated to ease Obama back into office?
This is the 'Wag the Dog' explanation of why things happen.
In 1997, Clinton ordered air strikes on Al Qaeda and Republicans
jumped on that action as an attempt to distract the public from Monica Lewinsky.
http://articles.cnn.com/2004-03-23/politics/wag.dog_1_bin-president-clin...
"I suspect it could be linked to the ending of QE in 7 days time."
I think Euan hit the nail on the head. This is the next round of stimulus to keep the economy's head above water. With the GOP stonewalling everything else, I kinda admire the creativity and resourcefulness. Its a losing game in the end, but I don't know that I would do anything different if I were in the big chair. What are you going to do, just succumb to being the president that let Great Depression 2.0 happen? No you are going to fight.
If Obama had any brains he'd be trying to find ways to back away from the helm to let some other poor sucker ride the ship down. This won't be the Great Depression 2.0, it will be the Abyss 1.0
Yeah, probably. I should probably put my cynic hat on, but in the end I am a sucker for people who actually give a crap about the world and are willing to go down with the ship and fight to keep it afloat til the end. Like Ugo Bardi said in his post on stoic philosophy.
You mean, like the guy who has incinerated hundreds, if not thousands, of desperately poor innocent Third Worlders? The gods save us from people who give a crap.
"If Obama had any brains he'd be trying to find ways to back away from the helm to let some other poor sucker ride the ship down."
I have always felt that Obama was allowed to win to be just exactly that; the patsy, the fall-guy, the scape-goat, the poor sucker to ride the ship down.
The opposition party is taking actions that are explicitly intended to further ruin the economy so that Obama will not get elected. That is their goal but they do not have a clue as to how they would turn it around once they got the power. Some of them may think they actually have a solution but, if elected, they will find out that they do not have a solution.
There is an increasing probability that the U.S. and most of the developed world will crash and burn in early August. Most people still believe in the fundamental sanity of congress. I don't anymore but devoutly wish I am wrong.
Without war, collapse likely won't be as scary as people think. Bad yes, but things move on, they always do.
America is going to be a country running alot more slowly. It will take forever to get places, and the streets and highways will be empty.
Be glad! It will be alot quieter, and as long as you can muster a weekly trip to the grocery store, even if they only have water and bread, and even if you only have food stamps, you won't starve.
Time to stop and smell the roses, is the way I look at it.
War is the big question mark. Always.
The next global war can be expected to begin in the 2030s or thereabouts. The major combatants, such as the US, are likely to lose a significant fraction of their populations. And if the war involves genetically modified pathogens, the loss could be very high globally.
http://en.wikipedia.org/wiki/War_cycles
"War is the big question mark. Always."
But nobody has the technology to fight a war without oil anymore. Where are the pikes, the short-swords, the maces?
Predator drones use far less fuel than piloted aircraft, but they hardly cut it as weapons of a full scale war.
The creation, manufacture, and distribution of biological weapons requires relatively little oil. Nuclear war using the existing stockpile of weapons requires little incremental oil.
War requires lots of oil only when it is fought by transporting large quantities of high-explosive weapons to distant places, and when fighting it in a way that spends tremendous amounts of energy to minimize casualties.
Consider that Cambodia was able to kill about 1/3 its population using little oil.
The wars in eastern Congo, Rwanda, etc. have required little oil. If you chop someones hands off with a machete, they bleed to death.
"War requires lots of oil only when it is fought by transporting large quantities of high-explosive weapons to distant places, and when fighting it in a way that spends tremendous amounts of energy to minimize casualties."
Sad but true. Look at the US Civil War, no oil used at all, and WWI, very little oil but a fair bit of coal.
Yes, it needs to be emphasized that all regular policy options have been eliminated. Even if congress gets around to raise ceiling to preclude immediate Armageddom, there will be massive demand destruction anyway as a result of budget cuts. This is, of course, the Republican's plan to take back power. I don't think this oil stimulus will be nearly enough to be able to overcome the coming demand destruction. This is the man going over the cliff and grasping at flowers to avoid the abyss.
Natequist, thanks, The nattering nabobs of negativity were getting to me. Yeah, it is not much, but if Libyan oil does come online in 3 months it will have smoothed the transition. The recent drop in crude prices forwarded into decreased gas costs represent a considerable stimulus. Best to keep them there.
6/15 Its (OPEC) 33 economists pointed to the need for 2 million barrels per day (bpd) more oil in the third quarter and 1.5 million bpd in the last three months of the year.
"This shortage of 2 million barrels, if it materializes, in the third quarter and the fourth quarter, then the price will go up for sure," Badri told the Reuters Global Energy and Climate Summit.
http://www.reuters.com/article/2011/06/14/us-energy-summit-opec-idUSTRE7...
So...
SPR now equals ruffly 700 million bls.
At 30 mil bl per month, that works out to 23 more months.
But, we won't need to release on a regular schedule, just every time the price moves up an inch.
It seems like it would be a regular schedule. Each time we reach the end of the SPR release then the price will need to move back up an inch.
This SPR release is like a band aid stuck onto a compound fracture. Well, considering the negative signals being sent it's more like salt being dumped onto the wound.
The general tone of the post is that governments can't do anything
to turn around the situation. On the face of it this is false.
The SPR releases are bringing down prices and the stimulus saved the banks and the stock market is back to ~90% of what it was in a very short time.
People and systems need time to adjust and much pain is involved.
'Ah, but in the long run we're all DOOMED' saith the gloomers.
Certainly the world has changed a lot in 3 years but does change equal DOOM?
It does for those who refuse to change.
This forum also needs to change from a focus on doom to a focus on
rebirth. Too much pessimism is corrosive.
"It is not God's will merely that we should be happy, but that we should make ourselves happy"--Immanuel Kant
“God helps those who help themselves.” Benjamin Franklin
It's also God's will that we be good custodians of the gifts he gave us. This is clearly not what happened. We are the prodigal son who wasted our inheritance and has yet to repent.
The decline has stopped for now.
Malaise is the new normal. The eighties and nineties are gone for good. This malaise will continue until Terminal Decline...!
Then, it really starts getting bad.
"On the face of it this is"....true.
Majorian,
Tell me one thing the governments of the West have done in the past 30 years in order to really change the conversation, educate the people, and move to a more energy-sustainable future.
I have to agree, government does have the potential to prepare for the impact of peak oil, but lacks either the foresight or the will to do so.
But like an alcoholic, a person has to admit there is a problem before he or she can be helped.
So you believe that the banks have not recovered, that the price of oil has not fallen recently and the stock market hasn't risen since 2008?
The governments of the West have actually done a number of things to reduce energy intensity, promote renewables and a 'greener' lifestyle but it hasn't been enough. OTOH, the 'developing world'
has undermined the conversation, undoing many weak steps forward in the West.
To be honest I don't know how complete 'gloomers' such as yourself can 'change to the conversation'.
I believe that the banks have had their books cooked to make it look like they have recovered. I also believe that the fed has made the interest rates so low, that people are forced to move their money out of bonds into what is basically a giant ponzi scheme and that that they are manipulating the price of oil lower. But the facts still stand, we are paying an enormous amount of money for an ever decreasing supply of oil coming into this country.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTNTUS2&f=W
http://cr4re.com/charts/charts.html?Trade#category=Trade&chart=TradeDefi...
I don't think that it is inevitable that we will hit a brick wall, but if we keep going the direction we have been, very bad things are about to happen.
I'm glad you are bringing this topic up Majorian even if I have a different take on it. We are currently trapped in a dualistic conversation between BAU-ers who refuse to see the problem (and convince the average American that there is enough oil to keep growth going for a hundred years, and if there isn't, technology will save us with no problem whatsoever) and the Kunstler-ite view that advocates for a "power down" strategy. If your goal is to convince the mainstream to shift the economy onto a sustainable energy basis, "power down" is about the worst message you could have. It goes against every human impulse to plan to power down. We need to power up, but in the right way. But many doomers just want to wallow in their doom, not fix anything. I am not including most Oil Drum-mers in this category, but the tendency towards learned hopelessness does come through.
I am waiting for an emergent movement with a realistic but positive message that addresses the problem clearly. The Transition movement is important and does great work, but it will never reach the masses. But then again, maybe the movement I'm hoping for can't exist, maybe its splitting too many hairs. Anyways, thats my thoughts.
The BAU-ers aren't credible even to themselves.
They spout capitalist 'happy-talk' but they know the party is over. They're pinning their hopes on neofeudalist 'Disaster Capitalism'. There are always winners and losers and if there are many more losers than winners then so be it.
It's a gambler's mindset.
In fact the great 20th century Golden Age was based on a rising standard of living for the masses. Everybody knows that's over--there aren't the resources left.
The great political struggle is between the doomed masses and an entrenched wealthy elite and the elite is clearly winning.
Our political system is not intended to address problems, our media is not intended to enlighten the public, and our economic system is not intended to raise the standard of living.
This is what the public needs to realize.
These are the things that must change.
An analogy might be to Europe's 16th century to 17th century.
It began with the theologically democratic impulse of the Reformation followed by the Counter-Reformation reaction. Quite early on the peasants and then the middle classes were defeated
and eventually the various princelings were defeated and converted to courtiers for absolute monarchs, with the occasional
reversal such as the English Civil War. What ended this dismal cycle was the Industrial Revolution.
There is nothing to prevent the whole world from being reduced to the living standard of Bangladesh or Somalia even though this is preventable.
Waiting?! Before you do what?
There are lots of emergent and fully emerged movements out there that will direct your energies usefully if they need directing. Google on any of these terms to find a few that motivate me: "environmental movement", "organic food", "simple living", "solar living", "feet first", "livable cities", "slow food" and on and on.
It's been said before but why not just "be the change you want to see" and motivate others by your good example.
I don't get this "waiting" thing.
Or Google "energyshortage" just to balance the equation. :-)
My feeling is that the simplest and most elegant solution to the problem is to reduce human population by 50% solely by the use of birth control, which could probably be accomplished in about a century.
This would involve changing the zeitgeist of almost every culture on the planet almost instantaneously through some innovative and as-yet-undeveloped combination of viral information dissemination, spirituality, psychology, and an appeal to shared values that would unite the most dissident anarchist with the most unrepentant and venal IMF free-market apologist.
As ludicrous as such a prospect might appear, it's starting to look more practical and civilized than the alternative, and has the advantage of not requiring much in the way of material instrumentality. It would preserve a substantial margin of our current way of life, and each nation's integrity and traditions could be preserved as well.
Life just isn't that much worse with two, one, or no kids in today's world. It's actually much less stressful.
While I'm not sure I agree that "power down" is the wrong message-- a shocking number of people loathe contemporary technology, and are becoming mentally unstable because it is being crammed down their throats-- I would concede that a "power flat" message has some advantages.
Please forgive the ravings of a visitor from the soft sciences, and thank you for your patience with my peculiar brand of idealism.
For my part I agree, and am cautiously optimistic since birthrates have been trending lower. I don't particularly want to have children myself. And being perhaps the most dissident anarchist who you mentioned, I guess you should direct your energies toward the apologists... But I do wonder what our population pyramids would look like after years of such a policy, and whether it's feasible for so few young to care for so many old.
- Resid the Undergrad
Just do not allow the old to live as long as they do in Japan.
See Russia as an example.
Alan
Do you really feel that when you get older that the world will better off without you?
In other words, how would you feel about this policy applied to you?
IOW......are you really serious?
I am talking about what the evolving social reality will be post-Peak Oil. Not what I want or hope for.
Some old people can still contribute, but they are a minority after age 72 or so.
Sometimes Reality Suxes,
Alan
In a wide variety of ways, I think that's deeply, deeply unrealistic.
-There's no reason for PO to cause the kind of deep poverty that would require: the minimum cost for keeping someone around is very low - perhaps $5k. It's very hard to imagine poverty deep enough to make aggressive euthanasia worth that kind of minimal savings.
-Most people over 72 can be enormously valuable - we just choose to put them on the shelf, which is a terrible practice.
-rates of disability are much lower among elders than they used to be.
-much of the remaining old-age disability is caused by over-eating and under-exercise, something that the kind of PO event you're envisioning will help reduce. Think of the improved health of the British during WWII.
-the only kind of age-related rationing that might make some kind of conceivable sense is a reduction in aggressive end-of-life medical care, which tends to have relatively little marginal value.
Good point about the pyramid. Fortunately, the idea of everyone living to 120 seems to have gone out of style with my father's generation.
Marjorian,
I don't want to "change to the conversation". I had hoped that the governments would have changed the conversation, but they haven't. Carter tried in the mid-70s, but nothing has been done since then.
The banks have been rescued by the Fed (which they own), the price of oil is TEN TIMES HIGHER than it was 10 years ago, and the stock market is where it was in January 2000 (give or take a few percent). Not exactly a basis for hope.
Yes, the governments of the West have done a few things on the margin, though much more so in Europe (eg look at miles/gallon for autos&trucks, or should I say "trucks"), but it's just so little given the scale of the problem.
I agree that change is underway and that buying time (aka kicking the can down the road) can give people a little more room to adapt to the new reality of higher energy prices. The one thing all governments want to avoid is sudden change so buying time by any means possible is highly valued. Longer term consequences are beyond the half-life of most terms in office and are therefore of secondary concern.
Successful politicians are experts at saying the right thing at the right time to change public perception and evoke certain public behaviors, e.g. voting them into office ... again. I see market manipulation at this level in a similar light -- affect sentiment, change behavior and buy more time. Often, the more surprising the move, the more substantial the impact it will have.
By driving down the price of oil a little, OECD governments are giving a warning shot to oil speculators: "We have the means and the will to reduce oil prices whenever we deem necessary. Get your money out of oil speculation and back into the productive side of the economy." If I'm correct we may see a call for additional sales of gold reserves at some point for similar reasons. Of course it will be sold to the public as fiscally prudent, non-debt income resulting from "smart investments" and "selling high" etc. Blah blah blah ... whatever. While partially true, those future comments will mask an ulterior motive to drive investors out of precious metals and into other parts of the economy.
At least in the US, with Quantitative Easing about to be removed and a new election cycle about to begin, the current administration needs to find substitute sources of money to inject into the economy to keep growth alive for a little bit longer. I believe that coralling investors into buying stocks and bonds as opposed to commodities futures is one way they hope to accomplish this.
Jon
Goldbuggery is a mental disease.
I saw Steve Forbes on Yahoo Finance arguing for the millionth time that now was the time to go back to the Gold Standard. All we had to do was to fix the price of gold at $1500 per oz. (locking in his capital gains) and the world would become heaven on earth.
So much for Gold as a currency!
The chutzpah of the Gold Bugs is breath-taking.
I disagree with Steve Forbes, both on his call for a gold standard, and for the price of $1500 per ounce, neither of which makes sense. IMO we should have both fiat currency, as well as freely circulating precious metals as an alternative for wealth preservation. Basically what we have now, but the fiat currency needs to be much better managed.
I'm investing in precious metals because they are the safest bet going forward. They are the only currency that is nobody else's liability, and they can't be manipulated as easily. 1 ounce of gold stays 1 ounce of gold, even though the price may fluctuate. Whereas, with fiat currency, you could lose all of your purchasing power very quickly.
Financial instruments don't look particularly good, and as we are finding out, oil is not a store of wealth, as it is manipulated by financiers and politicians. Moreover, economic depression will reduce the demand for oil, so the price is likely to be quite volatile.
Precious metals are the only store of wealth going forward.
In a world where all hell breaks loose, goes horribly pear shaped and tits up etc. etc:
Why would a cold, hard, metal that is essentially useless, other than in some industrial applications,jewelry and gold leaf on the domes of Statehouse Rotundas, be considered to be of great value any more?
Isn't that just BAU overvaluation of glittering objects which, has been, a large contributing factor in getting us into this mess in the first place?
Gold has always been valued for its innate appeal to our more primitive sensibilities. It will only lose this appeal once we evolve past that, and this evolution will require rational human genetic engineering. It's safe to say that gold will be valued for quite some time for reasons other than its industrial use. Whether $1500 is too much is anybody's guess, though... Some people are convinced that eventually the Fed will start inflationary policies to deal with deflation of the coming depression.
"To be born again," sang Gibreel Farishta tumbling from the heavens, "first you have to die."
--- The Satanic Verses
The SPR releases are bringing down prices and the stimulus saved the banks and the stock market is back to ~90% of what it was in a very short time.
Only in the very short term. We have had releases in the past; that didn't stop oil from going over $100 per barrel. What will happen is a short term price drop, and then it is as Euan says -- we can either buy it back at higher prices or run with less insurance in the SPR.
All in all a pretty stupid, short-sighted idea. And you have to love the comments at Joe Romm's blog. People are going "What are you smoking?" And Joe throws out one non-sequitor after another like "It won't impact prices in the long-run" and "We must sell off the SPR ASAP." I don't even think he believes it is a good idea; he is just towing the party line set by Schumer and Markey.
We're going to need the rest of this stuff if the rumors of Hugo Chávez having prostate cancer turn out to be fatal.
Prostate cancer is highly treatable. I would not worry.
I suspect you are too young to have seen many people die from prostate cancer:
What are the key statistics about prostate cancer?
May 22, 2011 – Prostate cancer is the second leading cause of cancer death in American men, behind only lung cancer. About 1 man in 36 will die of prostate ...
www.cancer.org/cancer/prostatecancer/.../prostate-cancer-key-statistics -
And as good old Wikipedia puts it:
"Prostate cancer tends to develop in men over the age of fifty and although it is one of the most prevalent types of cancer in men, many never have symptoms, undergo no therapy, and eventually die of other causes. This is because cancer of the prostate is, in most cases, slow-growing, symptom-free, and since men with the condition are older they often die of causes unrelated to the prostate cancer, such as heart/circulatory disease, pneumonia, other unconnected cancers, or old age. About 2/3 of cases are slow growing, the other third more aggressive and fast developing"
It's often said that you'll die with prostate cancer, not because of it.
From the IEA FAQ:
Months ago, the Saudis offered a "special blend" to replace the Libyan crude. It was not exactly a resounding market success. So how, in 30 days, will they come up with a new blend that does satisfy European refiners? Not from cranking up Ghawar of Khurais, which are both too heavy and sour in comparison. The composition of the "spare capacity" is important, as well as the time to market.
Edit: Of course, they could refill the SPR with heavy sour, and there was a report that the US and KSA had discussed this. But that still doesn't get the better stuff to Europe.
Yes, this is an admission that the Saudis can't pump more oil of the right grade.
But the main reason for the release is to chase speculators out of the market. They know quantitative easing must go on for years because there's no other way to fund all the insolvent nations and pay off their debt. Without manipulating commodity prices, they would quickly rise to levels that would kill of what little growth there is. It's a balancing act, and it will go on until large countries get their fiscals in order -- ok, that's never :)
This move makes perfect sense, if you believe that what the oil company top brass have been saying while testifying: That speculators are driving prices. Just check out Republican Investor (how can you not trust a source with that name?).
That story is widely about:
http://www.mcclatchydc.com/2011/05/13/v-print/114190/speculation-explain...
http://www.dailykos.com/story/2011/05/24/978918/-Finally:-CFTF-Charges-O...
Now if you believe oil's top brass is deliberatly lying to congress, well then this is a dumb move. I think the White House is calling their bluff.
If you get the API newsletters then you have been treated to some truly hysterical posts lately. First they scream it is the speculators that are driving up oil prices, then when the White house and congress threaten hedging (which has kept quite a few nat gas producers alive) they scream that speculation is essential to the proper functioning of the oil and gas markets. I love it "Oh, wait don't kill them! They are innocent! Didn't you know we were lying?"
There are a couple of other reasons to release from the SPR. The economy is going into a slide and that will pull oil down. 6 months from now may be a great time to buy oil if this is a repeat of 2008 (remember $30 oil?). Waiting to release until after the peak may have been timed to soften the depth of economic drop while still allowing the peak to drive behavior towards less oil use (government action to reduce oil use has been effectivly blocked in the US). Or it may have been because governments take time to react, and they are moving slowly.
There are quite a few Fed Reserve research papers tying oil prices to unemployment with an 18 month lag and that puts us at next November.
http://www.mitpressjournals.org/doi/abs/10.1162/003465398557708
Further, the oil companies defeated a cut in tax breaks. This is a way of knee capping their profits.
Thanks for the many (if grim) laughs about RI and API newsletters.
So you think this may actually be a very shrewd move?
If they know for certain that the economy is going in to a slump that will continue to drive oil and gas prices down, by releasing oil from SPR now, they can take credit for all the drop in oil prices, even if only a relatively small part of that is attributable to the release?
This may be too clever by half, but one has to assume that there are all sorts of games being played and signals being sent. Your last point seems particularly cogent. I still think that it's mostly about Europe, though.
Ding-ding-ding! We have a winner!!
Never forget that the prime directive for politicians is to get re-elected. And I don't for a minute think Obama and secretary Chu are dummies about the economy or peak oil. Obama is a consummate politician and he will at least be able to take credit for low gas prices even if the economy is in the ditch next year.
SA has announced it will produce more oil, but as Stuart points out on his blog, they actually dropped production after Libya, so maybe they don't have any. I think the economic drop is now locked in. As WestTexas keeps saying, oil prices are higher now (on average) than the start of 2008. I think governments are trying to keep the depth of the drop as shallow as possible.
The good news from my view is this says Obama (and the IEA) knows that oil and the economy are connected. The US was filling the SPR during the high price peak under Bush. We are light years ahead in understanding. (of course we could go light years back in 2012). Hey, they got it after 1 lesson. That is not bad! The IEA is starting to sound halfway realistic ("We should have starting changing 10 years ago"). The UK clearly "gets it" now.
We might get some skillful management of the recession. Interest rates are being held down. Check out Jeff Rubin's ASPO speech about how high oil prices turn into a housing crisis.
I am not saying the train wreck is avoidable. It isn't. And efforts to shift to a green economy are being blocked across the board. But the crash might be slowed in rate.
Hi Jon, good to see you tonight at the movie.
Do you have any idea of the timing of the 'train wreck'? Someone above said something about August of this year. 2012 seems a bit too...Mayan. Thoughts?
Thanks for the references and your comments. Just one observation, whilst it may be true that speculative activity in the oil futures market has increased greatly, and now represents the larger part of such activity rather than the minor part, isn't this likely to be the natural order of things when markets start becoming vulnerable and more chaotic? After all, if oil remains at a pretty constant price for years on end, how can speculators make much money out of it? Only those interested in securing oil and hedging changes in currency etc would be interested in a static market. So my point is not that speculators are causing the high and volatile prices, but that they are making use of the underlying supply/demand problem related to peaking / plateauing oil to make windfall profits. I doubt that many posting here would be suggesting that speculators are to blame, it's those who find it politically and economically convenient to deny oil and energy depletion issues that do this.
This whole move is like a diabetic going on a donut binge. It is a clear signal that world leaders, including Obama, are afraid to sit down with their people to have an honest conversation about the future of oil. It is a clear signal that, in a moment of panic, Obama has decided to jettison any pretense of dealing with our long range energy problems. In the short run, if he is very lucky, he might get a boost to the economy; in the longer run he is endangering a conservation, efficiency, and alternatives policy. I get it that he wants to be reelected but this kind of knee jerk reaction is why we will never do anything serious about the fundamental fact that we live on a finite planet with finite amounts of fossil fuels, other resources, and air in which to spew all the pollutants.
This is a clear declaration on Obama's part that he believes the American people are stupid and cannot be given the facts. To be fair, however, regardless of what he does, he will be attacked by Republicans and the American people do not possess the ability to rationally assess what is going on in the world.
Mommy and daddy have lost their jobs and have no prospects for another job. But don't worry, they've got three months of savings and a credit card.
You're right.
"This is a clear declaration on Obama's part that he believes the American people are stupid and cannot be given the facts."
I have always thought that Obama is an excellent judge of character.
You liberals can't make up your mind.
On the one hand, you want a Carter like president who levels with the American people regarding the energy situation, and proposes new ways forward.
On the other hand, you praise Obama for having nothing but disdain for the American people, and for making overtly political decisions merely to stay in power.
Conservatives jam that knife in your belly while staring at you in the face. Liberals stab you in the back and then run away.
People prefer the former. They always will.
Who is praising Obama? Certainly not me.
tstreet:
natequist implied that Obama was an excellent judge of character by having a low opinion of the American people and essentially misleading them.
I was merely pointing out that this seems rather contradictory to me: if a President were to say all the right things regarding our situation, natequist would be the first to praise him.
This type of behavior is actually very common amongst American liberals. They are very opportunistic and unprincipled. "Clintonian" if you will.
Obama is the same way, isn't he? All that matters is putting those rednecks in their place.
Go to dailykos and you'll hardly find a peep about this latest move. Heaven forbid they say anything negative about their wonderboy president.
Believe, me, I don't have a higher opinion of conservatives. But I call a spade a spade.
People prefer conservatives that jam the knife in their belly while staring them in the face.
Any links?
http://www.youtube.com/watch?v=h-HJ7_StDls
I love how we all think about politics knowing what we know. We still pick sides. LOL. No side will help.
One side favors the wealthy -- measures that strip wealth from the masses.
The other side is trying to grow the economy to keep a few more middle class jobs longer.
Neither side can win and both will fail. It is just about whether you like rich people to have more or more people to have about the same a little longer.
LOL. SPR would have been released by any President in Obama's shoes. Europe would experience a shortage this summer. Therefore, they needed to release too.
The cool part is the coordination of the SPR releases.
See coordination is the Tell in this poker game. The coordination tells producers and speculators the OECD can f--- with them still .LMAO
The human brain is in its primitive primate roots, inherently tribal.
We cannot help but to pick one tribe (the Demagogues) or the other (the Publicrats).
The one tribe neither side wants us to pick is Pangaea tribe.
[ i.mage.+]
Or that he loves power and will do anything to keep it.
Opposition party opposes, film at 11.
Asia joins global move to tap oil reserves
I guess China can buy Korean and Japanese oil.
The devil is in the details of these releases. According to this article, the Energy Department will offer all of the crude in one bid sale. The winning companies of whatever is sold would receive delivery by the end of August (wow!).
One question I would have is whether it is just a loan, as sales have been in the past. In this case, it would seem like the same companies would have to pay back what is purchased now, with what may be higher-priced oil later. If this is the case, not a whole lot may be sold.
So while the IEA says that it will take 30 days for new Saudi oil to reach the market, it will take over twice that for SPR oil to hit the market.
Maybe we need a DSPR (D for Dynamic)
I did find documents online related to the sale, but haven't read much of them.
Scribid - DOE Notice of Sale
SPR - General Rules about Sales
Bids seem to be due by June 29, and are calculated as % of the price of Luisiana Light Sweet Crude. This price seems to be about $109 now. Clearly Midwest markets that are oversupplied with WTI and heavy oils are not going to be much interested. Perhaps elsewhere? Depends on the terms, relative to other oil, it would seem. I imagining that they are expecting to sell the oil at a discount, and because of this, bring other prices down.
UPDATE 1-U.S. crude oil stocks drop as refinery rates soar says that midwest refinery utilization was 97.5%, so there is no room for SPG crude there.
East Coast utilization was 75.9%, and Gulf was 89.5%, so there is room for more inputs there.
You are right. We ran out of refinery capacity in 2006, and had to start importing massive amounts of refined products. Since then the net importation of refined products has dropped to almost zero, as the north sea production has declined. We will need to send the spr oil to europe, have it refined and then bring the products back here. The real problems are in Europe right now.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WRPNTUS2&f=W
This makes no sense. How can it take so long? I thought the SPR was for use in emergency? Smacks of a ploy to unhinge the futures market and a political move rather than a move to bring fresh supply to market immediately to put in cars for driving season.
Drawdown Capability
Maximum drawdown capability - 4.4 million barrels per day
Time for oil to enter U.S. market - 13 days from Presidential decision
http://www.fe.doe.gov/programs/reserves/spr/spr-facts.html
This would then suggest that the world market is 'well supplied'.
No it means the terms of this sale are so bad that no one wants it. If I offer oil at $1000 per barrel and have no buyers that does not mean the world is well supplied.
Time will tell, of course. But Alan Drake speculated yesterday that the oil may not be replaced. That's the way I would bet, too. Proceeds will help patch up some cuts in the upcoming budget deal, and further liquidations will be evaluated. Start of a slippery slope, IMHO.
August is guaranteed delivery date. The sale document says every effort will be made to deliver in July where requested and possible.
Oil for delivery from SPR in August will hit the refinery in mid Sept to be refined to hit the pipelines by the end of Sept to early Oct. This will put the finished product into East Coast and Mid West terminals late Oct.
This release is for the winter season.
The question is why would the present admisistration want cheaper fuel for the winter ???
Silly season starts in Jan in Iowa.
I would want to know who has profited from front running the knowledge this release was going to occur. There is/was a contango going on now the ladders on the floating roofs are pointed straight down! The pipelines are pumping the bejeebers out of the tanks. They are getting rid of inventory to be able to fill with ? higher or lower cost oil?
My gut feeing, based simply on where I see the ladders on floating oil storage tanks, is the price of crude is heading lower. And this was happening before the release of the SPR oil.
Something is not passing the smell test!
Maybe it buys some time for a group [the House of Saud perhaps?] to finalise their security arrangements on their fortress in Uraguay..?
I do find it interesting that the Republicans are not screaming about this....but maybe I tuned it out. Of course another reason they may not be screaming is they are finally realizing the jig is up and its either admitting time or covering up time. The other angle is that it appears to be market manipulation for a mere 60 million barrels....I wonder who made money on that announcement...
Screaming would be irrational. They are complaining.
Gotta love the API:
What did Nero say as Rome Burned, "There is no supply emergency." That guy gets paid more than me too. LOL.
While heading into work this morning I was listening to a local right wing radio talk show host discuss the SPR release. He was calling this a political move by Obama, which I tend to agree with. He then said something that amazed me, and I quote, "30 million barrels is only a day and a half of US consumption." I was quite impressed until he went from that into a rant about drilling in ANWR, GOM, top of Mt. Rushmore, etc.
I can confirm that attitude from what I hear. Some of them know so many details, such as how ethanol doesn't have the necessary energy return, etc, but when it comes to facing some reality they stop short and just blame environmentalists. Everyone knows why they do this -- their audience would simply evaporate unless they could blame bogeymen.
Exactly. Same as right-wing congressional and senate campaigns. They've so demonized the centre-left to their (IMHO blind) constituency that they no longer dare agree with anything the centre-left might do.
Looks like the US got Saudi permission for the SPR release ...
Before Oil Move, a Secret U.S. Delegation to Saudi Arabia
I wonder if Saudi Arabia might be the key to this whole thing. My initial impression was that the release of emergency supplies was a vote of no confidence from the IEA regarding Saudi Arabia's ability to increase net oil exports, and that may be the case, but it also occurred to me that the release of emergency supplies may allow Saudi Arabia to claim that additional Saudi oil is not needed, given the release of emergency supplies. If Saudi Arabia can't materially increase their exports of oil, especially light/sweet oil, the release of emergency supplies would be a very convenient fig leaf for them.
Note that the five year numbers for Saudi Arabia don't look good regarding their future net export capacity. Their consumption to production ratio rose from 18% in 2005 to 28% in 2010 (BP). At this rate of increase in the ratio, they would approach a 100% C/P ratio (and thus zero net oil exports) in only 14 years, around 2024. And I am surprised that the BP data base showed another year over year decline in Saudi net oil exports, from 7.3 mbpd in 2009 to 7.2 mbpd in 2010 (versus 9.1 mbpd in 2005). So far, Saudi Arabia has shown year over year declines in net oil exports for four of the past five years.
Saudi Arabia is not –not – increasing its regular oil exports since that widely reported claim that they would increase output by 1 million bpd more than the level prior to that announcement. Even the IEA admitted yesterday they see KSA recently increasing output only by 500,000 bpd (but it was not clear over what time period). The Saudis may be reserving some of its extra output for itself to get through the summer cooling season. As best as I can determine exports from KSA have increased about 300,000 bpd starting on or about June 1, with 100,000 bpd of that going to Yemen for free.
Meanwhile oil tanker tracker reports indicate even with those extra exports (of 300,000 bpd) above, OPEC is still exporting 1.25 million bpd less than right about the start of February. The US has taken a disproportionate share of that export loss, and with ‘floating storage’ nowhere to be seen as it was in the summer of 2010, frankly the US was headed for oil shortages as soon as August.
Coincidentally the SPR is timed to be released in August. I’m not saying the many other factors mentioned here were not contributing factors to the release of oil reserves, but a prospective oil shortage is a powerful motivating factor.
At this point, I believe that KSA will now be excused by the media from delivering on its recent oil 1 million bpd increase in output pledge, just as it was from other hyperbolic pledges earlier in 2011.
But there seems no way out
- Euan Mearns (above)
May I suggest that there is "a way out". Reduce consumption (NOT increase it) and invest the "lost consumption" in long lived energy efficient and energy producing infrastructure.
Some sectors grow due to increased demand. More insulation, better windows and doors, solar or gas tankless hot water heaters on the residential front. Some measures may have long paybacks, but they still "pay back" and more in years beyond.
With consumption, nothing but trash is left for the future.
Factories can become more energy efficient, and provide a buffer for the future.
And massive infrastructure can be built with "lost consumption". Wind turbines, solar, electrified and expanded railroads, urban rail, a few billion for bike infrastructure, transit orientated development.
I have calculated that US trucks would have to buy diesel at 18 cents/gallon to compete with the fuel costs of electrified double stack rail. Transportation is one of the fundamental "Factors of Production". Permanently lower that cost# and source it domestically (hopefully renewably, even if it costs 20 cents/gallon), and the long term benefits will ripple through the economy.
Such a transformation would not be immediate. In the year of investment, only (average) six months of benefits. That first year, a $1 invested is little better than a $1 consumed. But in the second year, the benefits double and only minor operating costs (depending on type).
Best Hopes for Seeing Another Way,
Alan
# The marginal cost of rail capacity is lower than the average cost, the opposite of trucks and highways. Even excluding fuel costs, the more rail is used, the cheaper and faster it gets, with appropriate levels of infrastructure investment.
Absent ties (40 years expected for concrete ties), other fixed infrastructure will last a half century to over a century. A long term investment in energy efficiency.
Alan, all these attempts to keep this tattered ballon aloft simply delays the day that a new way of thinking can be introduced. We (the OECD) are insolvent and lack the means (cheap FF) to do the physical work required to move forward with the old model. IMO we need a major hiatus, a shock, and from that lower point, we can build.
I suggest that REDUCING consumption (absolutely doable in the OECD) and diverting the freed resources (minus depletion) to long lived energy efficient and energy producing infrastructure IS THE NEW MODEL.
Yes, it preserves much of the social and economic infrastructure of the past, but that seems to be an advantage.
More later,
Alan
May I suggest that there is "a way out". Reduce consumption (NOT increase it) and invest the "lost consumption" in long lived energy efficient and energy producing infrastructure.
Three reasons this won't happen:
1. Goes against the profit-seeking, plannned obsolescence mindset of America's Oligarchs, which won't be changing anytime soon, not even with an outright Depression. Wall Street will change its mind when you pry the last nickel out of their cold, dead hands. Ditto for prying the last Cheez Doodle out of Jim-Bob Sixpack's hands.
2. Jevon's Paradox (so eloquently illustrated in several earlier posts here).
3. Any reduction in U.S. consumption will be more than offset by the additional 70 million added to world population each year, many in "developing" countries that are driving hard to attain our high consumption wasteful lifestyle.
Logically, "solving" the problem of dwindling finite resources vs. exponentially growing population X consumption (before Mother Nature does it for us in a not-so-nice way) is absurdly simple. Practically and politically though, it's impossible. You will never be able to "teach" the unteachably, willfully ignorant masses who actively resist this information. It seems to be a genetic trait that ~98% of the population will always believe what they want to believe and live in an alternate reality of religion, mysticism, BAU, Culture War politics, and convenient scapegoats. They continue to be ruled over and manipulated by a tiny % of talented sociopaths who understand this mindset and exploit it mercilessly for personal advantage. In the U.S., these elite sociopaths have convinced the masses that the price of oil is high because of gay marriage, corporate capture of government is good, and that AGW is a liberal myth created by devious scientists scheming to get grant money.
Even worse, the drive to reproduce endlessly and consume without limits appears to be a universal genetic trait that no amount of education or convincing will ever be able to counter. But... not to worry, empirical reality has a way of imposing itself, despite all of humanity's tireless efforts to vanquish it. All TODers can do is prepare as best we can for our own futures and enjoy the show as it plays out.
It is evolution in action. Those that give up (have few children) loose. Yes, there maybe a die-off coming and those that have the most descendants have the best odds of having surviving descendants when it is all over. Yes that is over simplified if you have fewer but they are better provided for (in a mansion in Greenwich, Connecticut with a massive Swiss bank account protected by private security and then a layer of town, state and federal police) that could provide better odds.
Having a lot of direct descendants is the agenda of the gene. There is no particular reason for it to be the agenda of consciousness.
Humans are pretty fungible at this point, not a lot of variation in the genome. I didn't make any new humans, since the supply seems ample. Knowingly raising kids as some sort of lottery ticket cannon fodder to try getting one's cleft chin and hazel eyes through history's biggest dieoff would be beyond abusive.
Just my 2 cents...
When you look at the massive variability in behavior in dogs (ie. retriever vs. terrier), and then consider the variability in mental predilections in humans (ie. the "engineering mind" or Asperger's type people vs the artist) it seems obvious that what variation there is in the genome can cause big shifts in overall behavior. Imagine a world populated entirely by Aspies, or one in which they didn't exist.
Incidentally, I think that humanity's best long-term hope is genetic engineering... We are getting close to a $1000 full genome sequence, and we have the 1000 Genome Project. We also have rapid advances in gene synthesis to the point that anyone with $5000 can order a gene from a company and get a plasmid of your choice, of any sequence you desire.
The biggest obstacle to overcome is ethical, but someone will do it. Somebody always does...
Interesting take, but... what makes you think selfless philanthropists and rational do-gooders will be in charge of the genetic tinkering? Wouldn't the Oligarchs much prefer a world of stupid, submissive, trusting sheep? And for themselves (the ruling top 0.1%), they'd want even more evil, brilliant sociopaths for offspring. Or even better --genetically engineer *themselves* to be immortal.
"The marginal cost of rail capacity is lower than the average cost, the opposite of trucks and highways."
How does this work mathematically? Does it simply indicate that rail is below capacity? I'd certainly expect a big bump in marginal cost when a growing mode reaches capacity and needs a new increment of capital investment, but that would apply to any mode. So, as a broad-brush distinction between rails and highways ... huh??
The most dramatic example was earlier this month.
BNSF opened 5 miles of double track in Abo Canyon ($90 million investment) and increased capacity on their Southern Transcon line (2,217 miles - LA to Chicago) from 80 to 100 trains/day to 135 trains/day. Abo Canyon is a fairly steep section with many 40 mph curves and was quite a bottleneck when it was a single bi-directional track on June 1st.
This was the penultimate (one or two left) improvement of this vital line. And yes, almost $2 billion was spent before on improvements that have steadily raised both capacity and speed.
A decade ago, Southern TransCon capacity was 50-60 trains/day even with substantial sections of double track and average speeds almost 20 mph slower. The original cost would have been substantially more than the >$2 billion cost of improvements.
I wish I could derive a mathematical ratio, but individual cases vary too much.
Alan
The Louisiana DoT is spending $1.2 billion to expand traffic lanes on the Huey Long bridge from 4 lanes to 6 lanes. An example of highway vs. rail capacity increases.
BTW, faster is cheaper. Less rolling stock needed and less labor/train.
Apples and oranges? Clearing bottlenecks is indeed often a cost-effective way to raise capacity. But shouldn't we expect rebuilding an ancient (75-year-old) major, world-class river bridge to add lanes (or tracks for that matter) to be vastly more expensive than just blasting, grading, and laying an extra track (double-tracking) or extra lanes on the ground in the back of beyond? All the more so if said bridge has to be kept in service, and the shipping channel underneath has to be kept safe and open, during the rebuild? Wouldn't double-tracking a railroad bridge of the same size under the same constraints be expensive too?
This example seems merely to illustrate that rebuilding obsolete major river bridges is expensive. (So is rebuilding obsolete old houses.) Didn't we know that already?
One also wonders why they didn't simply build a new cable-stayed bridge, then demolish the old maintenance-intensive monster, a sensible approach that has sometimes been taken elsewhere on the Mississippi and its tributaries. Then again, maybe anything associated in any way with the Longs is doomed forever to be beyond rational explanation.
A number of incorrect assumptions.
75 years is hardly ancient for a rail bridge (and the Huey Long is a double track, unlimited weight rail bridge with road lanes cantilevered off it). At least another century left in it. With the rail approaches, almost 4 miles of heavy steel construction. A significant % of all US steel production in 1933 went into this one bridge.
MASSIVE supports on either bank of the Mississippi, as the supports anchor the bridge in the mud (no bedrock).
I am NOT an expert, but I cannot see a new cable stayed bridge as a viable alternative for rail + road loads. Simply too much. And what of the approaches ?
I suspect a modern bridge, built to 100.4% of specs would last no longer than the massively over built Huey Long. Both might be scrapped in 2140.
Maintenance is basically painting.
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The bridge does not need more capacity. It connects two suburbs and the draw on one side, the Avondale Shipyard (5,000 jobs + suppliers) closes just as the $1.2 billion is spent.
Better to let the bridge continue to be a bottleneck and reduce driving. One "benefit" is to enable more sprawl on the Westbank. In any case, the cost effectiveness of reducing the road bottleneck is two or three orders of magnitude less that reducing the rail bottleneck.
In fact the entire Southern Transcon upgrade, affecting 2,217 miles, is only about 50% more than the Huey Long upgrade. The rail line upgrade has three or more orders of magnitude benefit to society than the bridge widening.
Best Hopes for Rail Investments,
Alan
But the railroads are entirely monopoly private systems including the trackage and traffic control! While the highway and airways are public systems that anyone can use.
Until the Federal Government nationalizes the railroad trackage and traffic control systems into one public national system on which any and all private businesses that wish to operate railroad freight and passenger systems you will never get any real movement towards efficiently operated systems and particularly passenger rail systems that can compete with the road and air transportation systems.
Companies like UPS and fedEx are not going to utilize rail to any real degree until they can operate their own network of trains just like they operate their own networks of trucks and airplanes.
Private local, regional and national passenger rail companies are never going to get started as long as they would have to pay obscene fees to use the private railroads monopoly ownership of the rails and be subject to the unreliability of being at the mercy of the monopoly railroads traffic control systems.
I can start a small trucking company and operate on the public highway - I can not start a small railroad passenger service because there is no public rail system on which to operate.
But the railroads are entirely monopoly private systems including the trackage and traffic control! While the highway and airways are public systems that anyone can use.
The railroads built their own tracks and pay to maintain them themselves, unlike the public highways which YOU pay to maintain. The thing about railroads is that they don't wear out very fast, and we already have almost all the railroads that we need.
I can start a small trucking company and operate on the public highway - I can not start a small railroad passenger service because there is no public rail system on which to operate.
Sure, you can start your own short line railroad - many people have, but it takes a lot of money to do it. If you want to buy a Class I railroad, you have to be as rich as Warren Buffet was when he bought BNSF.
If you don't want to start your own railroad, you can just buy rail cars and pay the railroads to move them around for you. Many companies have done so. It just takes a lot of money.
Railroad company
To date, not much of a problem.
Total gross revenue for all US railroads is about $60 billion/year. Trucking gives different #s, from high $300 billion to low $600 billion (I am still trying to parse the delta). Trucks cause about $30 to $40 billion more damage each year than they pay in taxes and fees.
Rail carries more ton-miles than trucks, by a ratio of 1.8 to 1.4 (I forgot the units).
Rail can make massive increases in revenue and still not burden the economy.
And for enough $, they will sell trackage rights to their tracks. One time or forever.
Alan
Alan, do you happen to have a source handy for "Trucks cause about $30 to $40 billion more damage each year than they pay in taxes and fees."?
I found another source
from the Farm Bureau's "Funding Infrastructure Projects".
Damage = $150 billion/yr
Repairs = $65 billion ($35 from taxes).
There are two causes of road maintenance, weather and trucks & buses. Weather is the smaller in most cases. Because damage is proportional to 4th power of axle weight, cars do no direct damage. However, cars should pay something towards weather damage.
So allocate all car & motorcycle gas taxes to their share of weather damage. That means $30 billion annual subsidy for actual repairs and $115 billion for actual damage.
Alan
You're all right about that. consume less and use that energy to sustainable energy is the key, should be done 20 years ago. you must invest some of the energy for more future energy, if not 6(or 7) billion people cannot live in one planet with so little left to fuel them. My intentions is not to scare anyone but that's the truth.
I think geothermal energy is the one we should put the cards on (see Enhanced geothermal system - EGS for more),and huge production for electric bicycles.The law will allow people to drive car only if that person carries a cargo. if we don't do these steps now... our modern life as we know it will end and everything will start again from zero, not a bright story for humanity.
"The law will allow people to drive car only if that person carries a cargo."
Oh, goody. I "love" these ingenious stick-it-to'em "creative" ideas. Yup, I can just see it now. Everybody carrying empty boxes or other fake cargo, like the blow-up dolls in the carpool lanes. Or carrying real cargo back and forth, like dragging a kid along in order to use the carpool lane. But this will be really hard to sort out, so we'll have to empower the police to stop anybody anytime they feel like it, and open boxes and rummage through everything in the car, without even a pretense of suspicion. As if we don't have more than enough of a police state already.
Alan:
Right but Wall Street needs money right now. They aren't interested in delayed return or things which benefit people.
End of story. What you are proposing will never happen in the country called the U.S.A., as it currently exists.
And yet BNSF adds new rail -- why? Cause trucks are too expensive. BNSF is a wall street traded firm.
Last year, railroads spent 18% of GROSS revenues (about $60 billion) on capital projects. Some for rolling stock, some on tracks and some on other (improved signals and dispatching).
This year will be higher. No other industry comes close to rail for capital investment.
Best Hopes for more rail revenue, and more investment,
Alan
Euan,
Have you read "This time is different - eight centuries of financial folly"?
It seems clear that bank crises and sovereign defaults are nothing new, and nothing to see as a sign of TEOTWAWKI.
This Time is Different- A Panoramic View of Eight Centuries of Financial Crises talks about the non-defaulters being by and large huge growth stories. The authors didn't really know what to make of this relationship, but it makes perfect sense if you think about how much better able a government is able to pay back its debt when the economy is growing, and tax revenues are growing. There is a strong correlation between both oil use and total fossil fuel use and economic growth--also studies indicating this is a causal relationship.
The issue is that if the rate of economic growth decreases because of higher priced oil or other fossil fuels, then a big rise in debt defaults would seem likely.
talks about the non-defaulters being by and large huge growth stories.
My reading of the book was the opposite - that growth very rarely prevented default. Could you point me to the passage in the book you're thinking of?
This is their earlier paper I linked to above. The authors make the statement about the non-defaulters being huge growth stories, but didn't understand why they found this result, so it is quite possible that they didn't discuss the issue in their book. The reason behind the result seemed perfectly obvious to me--it is something I have been writing about for a long time. If there is economic growth, it is a whole lot easier to pay back debt with interest. If there isn't much growth, the nearest thing you can do to prevent default is to cut back interest rates to close to zero. Sort of sounds like what is happening now, doesn't it?
The authors make the statement about the non-defaulters being huge growth stories, but didn't understand why they found this result...
I don't see anything in the paper that suggests this description. Here's what they said on page 15:
"It is notable that the non-defaulters, by and large, are all hugely successful growth stories. This begs the question: Do high growth rates help avert default, or does averting default beget high growth rates?"
That doesn't suggest at all that they don't understand your proposed explanation (that growth helps support repayment by reducing the proportion of debt to GDP). It does suggest that they think that a lack of defaulting might actually support growth rates, which is entirely different.
I would argue that in the case of a sovereign country, the lack of debt is the cause and lack of default is the effect: In developing a country such as China *before the Communist revolution* giant government projects like building a dam, or a road, involved massive numbers of coolies carrying dirt in wicker baskets, not foreign engineers, and imports of foreign built heavy machinery. It was much easier, and more in keeping with the culture, to feed the coolies than to provide suitable accommodations for foreigners. So there really was no need to borrow money to pay for the work. Does US really need to import anything (other than oil) to engage in infrastructure enhancement?
So why go into debt to do it? Because the banks like to do usary. Pure and simple. Some countries had rulers who preferred people to money as a measure of their sovereign wealth. Some were duped by the usarers. Yes, entrepreneurial business debt is different. But sovereign debt is what the book and paper are about. Consumer debt is closer to sovereign debt in moral stature, in my opinion.
the lack of debt is the cause and lack of default is the effect
I think the authors would agree - if you don't borrow much, you're not likely to default.
Now that is closer to a real tautology. I have never heard of someone defaulting on anything but a loan.
Yes.
It's hard to convey a slightly ironic tone in writing.
There is a strong correlation between both oil use and total fossil fuel use and economic growth
Sure, but most of the direction of the causal relationship is economic growth causes increases in primary energy consumption. The effect in the other direction does exist, but it's weaker.
also studies indicating this is a causal relationship.
I haven't seen that. Ayres argues that there is a strong causal relationship between exergy (effective application of energy) and economic activity, but that the relationship between primary energy and economic activity is very, very weak.
I haven't seen anything that showed that fossil fuels were better or more useful for economic activity than other kinds of energy.
Cheap energy is best from the point of view of keeping the economy going. That is the issue.
I know that's what you're arguing. I certainly agree that cheap energy is nice. There's also no question that high oil prices tend to suppress growth in oil importing countries.
It's the strength of this effect that I'm questioning. The idea that PO will necessarily cause the collapse of the current world economy seems entirely unsupported to me.
First, we currently have an large surplus of oil compared to what is necessary: in particular, half of all oil is used in the US for personal transportation which could be accomplished with much less oil - the same thing applies to other countries and industries in lesser degrees. This surplus will help get us through a transition away from oil.
2nd, PO doesn't mean Peak Fossil Fuels: for better or worse, the world has quite a lot of NG and coal.
And, peak FF doesn't mean Peak Energy: wind energy isn't dirt cheap, but it's quite affordable, abundant, and high-EROI. It's intermittency is quite easily manageable.
The problem is the distance between what should be and what will be. There is not ever likely to be any system of allocation in the US aside from the present one, e.g. "If you got enough money, you get the petroleum". So the poor unemployed potentially cheap workers who could perhaps revive a real productive economy will be stuck uneducated and unemployed in wasteland suburbs while their "betters" zip around in as many large wastefull cars and SUVs as the remaining resource can support, earning their living servicing hedge funds for the foreign oil princes.
poor unemployed potentially cheap workers who could perhaps revive a real productive economy will be stuck uneducated and unemployed in wasteland suburbs
I"m thinking....carpooling.
In the long run, of course, the poor will get used cars just like they do now, only they'll be HEV/PHEV/EREV/EVs.
We will see more carpooling for sure, but I think the real point of what Len was getting at is the unemployed - it doesn't matter how little oil the cars use, if you haven;t got a job.
We have a technical solution for the cars, and over the next decade, it will get implemented.
we don't really have a solution for unemployment, and over the next decade, it is likely to get worse.
Well, that's where this thread started, with my question:
Have you read "This time is different - eight centuries of financial folly"?
It seems clear that bank crises and sovereign defaults are nothing new, and nothing to see as a sign of TEOTWAWKI.
It seems clear that bank crises and sovereign defaults are nothing new, and nothing to see as a sign of TEOTWAWKI.
And i agree. What is different, I think is the unemployment situation. Even when all the debt/defaults are resolved, by whatever means, we still have a lot of people with nothing to do. It is the first time in history when the society does not need much human labour input in order to survive, and even thrive.
As someone else said, production is increasingly being decoupled from labour. This trend has been happening ever since the post war years of course, and was how a growing market was served - produce more with the same workforce. Now we have produce the same (or even less), with less people, and less demand for what is being produced, in many areas.
Even if the US gov was debt free tomorrow, the structural unemployment remains, and, once the energy problems are resolved, is then the most pressing challenge. In the past, societies could not afford to carry unproductive people. Today we can "afford" it, but the wealth to do so is fairly concentrated, and those who hold it do not seem inclined to carry those that don't (and never have in the past, to any great extent). The preferred solution is to have everyone work of course, but doing what?
1) There's a lot more to life than goods. That includes services like child care, education, eldercare, healthcare, etc etc, that we need a whole heck of a lot more of. Until all children, elderly and disabled are taken care of well, we're not there yet. Until medical research has eliminated all disease and disability, and eliminated aging (or come close to it, like the One Horse Shay), we're not there yet.
2) There's more to the world than the OECD. Until there's no more poverty in the world, we're not there yet. We bemoan globalization in the US and complain about losing jobs in exchange for our cheap goods, but in some ways it's really a process of helping the 3rd world. Hard on some of us, but good for them.
We could work less (especially in the developed world) and there would be a number of benefits that we could attain. Many activities that aren't "work" are enormously valuable, and under-appreciated: rest, relating to others, meditation, creative work, etc, etc. Paradoxically, many people would be not only happier, but more productive if they did more of those things.
We're far from the point where increasing labor productivity really allows us to relax. That's from an ideal point of view, in which we take responsibility for the whole world. Is that taking on too much? I don't know.
Another general world task that occurred to me: elimination of ongoing human ecological damage, and then remediation of all the damage previously done.
That'll keep us busy for a while.
On the other hand, there's a fair amount of unproductive work in the world. The most obvious is the production of unnecessary "fashion" items (vehicles, clothes, etc, etc). I'm thinking of obvious over-consumption by people who seem to be pursuing emotional needs through compulsive shopping: too many shoes, unneeded SUV's, overly large houses, etc.
On the 3rd hand, we may overestimate this kind of effect. For instance, used cars don't go away: they get used by someone else, pretty much until they die (often in other countries, like S America). On the 3rd hand, used cars in the US sometimes die prematurely, due to excessively high depreciation which makes repairs uneconomic. It's complex - it would be interesting to see an analysis.
Now, the final question: how do we arrange to pay people to do this work that is needed? Financial engineering...
I do agree that there is scope for more of a "service" economy than a "consumption" economy - this would be a good thing.
Nathan Lewis has written a lot about this ; the servic economy
The problem is, that there are a lot of low paying service jobs, and fewer well paying ones. It's hard for a couple to bring up a family when they can only get $12/hr jobs, and not everyone can be a doctor/laywer/accountant etc. The middle paying jobs are fast dissappearing.
So the problem still remains, how do those in the low paying jobs, who are servicing the wealthy, afford to live? We still have the redistribution problem, and that will indeed take some interesting financial engineering.
Under today's BAU, of course fossil fuels are better suited for economic growth. This is really obvious. When fossil fuels deplete enough and BAU changes, it becomes a moot argument.
Depends on what you mean by BAU. If you mean exactly how we operate today, well that's pretty much a tautology.
OTOH, freight can go by train instead of truck, commuters can get to work with HEV/PHEV/EREV/EVs, etc, etc, etc.
The problem is not one of a tautology but that you provided absolutely no premise or context for your assertion.
Here is an example of a context within today's economy:
Jet fuel is the best form of energy to use when promoting international tourism
you provided absolutely no premise or context for your assertion.
Yes, I was going for brevity.
Jet fuel is the best form of energy to use when promoting international tourism
Yes, aviation is the hardest thing to replace.
We're going to have fossil fuels for many decades, should we want them, albeit at lower levels than today - we have time to find the cheapest and most convenient way to replace aviation FF consumption.
In the long run, 3x greater efficiency is possible, and synthetic FF-free fuel is unlikely to be more than 3x as expensive per gallon.
------------------------------------------------------
First, while jet fuel is probably the hardest use for oil to replace, there are a number of ways to use it more efficiently. Short term changes include buying more efficient planes; reducing use of older, much less efficient planes; filling planes more fully; longer and more gradual descents, reducing powered flight time; reduced time in the air waiting to land; electric "tugs" on the ground); and a long list of others - ( http://www.nytimes.com/2010/10/09/business/09air.html?_r=1&th&emc=th ). This might be expected to reduce fuel costs by roughly 1/3.
2nd, fuel is only very roughly 40% of airline costs, and oil is only part of the cost of fuel (jet fuel is higher quality, and therefore more expensive). Combined with the efficiencies discussed above, this means that if oil prices were to rise by 100%, airline ticket prices would only go up by 25%. That's not going to stop people from flying.
3rd, it's very unlikely that oil prices will rise by 100% in a sustained fashion. First, oil prices above $150 would slow down economic growth (if not stop it entirely). 2nd, all of the major uses for oil have substitutes that are cheaper when oil rises above roughly $80. If oil prices went to $150 and stayed there for any length of time, consumers would move to carpooling, mass transit, hybrids, EREVs, EVs, rail, heat pumps, etc, etc, very very quickly. Both of these effects would keep prices from rising further, and probably reduce them from that peak.
4th, in the long term, design changes can reduce fuel consumption by 70%:
"CAMBRIDGE, Mass. — In what could set the stage for a fundamental shift in commercial aviation, an MIT-led team has designed a green airplane that is estimated to use 70 percent less fuel than current planes while also reducing noise and emission of nitrogen oxides (NOx). http://web.mit.edu/press/2010/green-airplanes.html
and
"the team has found that the SUGAR Volt concept (which adds an electric battery gas turbine hybrid propulsion system) can reduce fuel burn by greater than 70 percent and total energy use by 55 percent when battery energy is included. Moreover, the fuel burn reduction and the ‘greening’ of the electrical power grid can produce large reductions in emissions of life cycle CO2 and nitrous oxide. Hybrid electric propulsion also has the potential to shorten takeoff distance and reduce noise. "
http://www.boeing.com/Features/2010/06/corp_envision_06_14_10.html
5th, fuel can be synthesized from electricity, seawater and atmospheric CO2 right now, but the costs are high - roughly $10/gallon. The Green Freedom project promises synthetic fuel for $4.50 per gallon, pretty close to where we are today, but if they never fulfill that promise we can still synthesize fuel, albeit at higher cost.
30 years is enough time for aviation to become more efficient - that will keep it going another 20-30 years. 50-60 years is enough to develop and streamline substitutes like biofuels, synthetics liquid fuels (from renewable electricity, hydrogen from seawater electrolysis and atmospheric carbon), or liquid hydrogen.
The actual balance between efficiency improvements and reductions in synthetic fuel costs remain to be seen, but it's highly likely that we'll see synthetic fueled jets with operating costs equal to those of today's airlines.
We've got to mostly ditch aviation.
What about what I wrote above?
Well, the new aircraft designs will take decades to make it into general use - the efficiency improvements will not nearly keep pace with fuel prices, so, in relative terms, air travel will become more expensive.
I am Ok with that, though.
I think Green Freedom is DOA - nuke plants to reverse combustion to make fuel? We'll do coal to liquids and mine the oil shale first.
I think, for now, some incremental improvements in air travel - more efficient versions of current planes, and slightly slower flying speeds, the electric wheel tugs etc will be about the best we can expect for the next decade.
Along with some more use of rail (medium, not high speed) to reduce volume on short flights - those are the ones that are the least profitable for the airlines, and use the most fuel per pax-mile - there is plenty of room for improvement there.
the new aircraft designs will take decades to make it into general use - the efficiency improvements will not nearly keep pace with fuel prices, so, in relative terms, air travel will become more expensive.
A lot of the changes are operational, so they're very fast - the airlines are getting very creative with ways to cut costs. Others, like the Boeing Dreamliner, are being delivered pretty much right now.
I think Green Freedom is DOA - nuke plants to reverse combustion to make fuel? We'll do coal to liquids and mine the oil shale first.
Yeah, that's a very, very long-term thing, isn't it? It would require a very strong commitment to get rid of fossil fuels.
more use of rail
That would make sense: are we really seeing plans for enough to make a difference?
The airlines are indeed sharpening their act, more changes will come.
I do like this one, the wheel tug, though it is not on the market yet.
I sure see a lot of engine powered ground support vehicles at airports, they could all be changed to Ev's.
But the biggest fuel savers to date have been higher load factors, and eliminating low load factor routes - usually the short ones
Green freedom is one of those interesting techno things, like space based solar. The thing is by the time we are ready to do green freedom, I think the ICE vehicle will be largely redundant, or only being used in niche applications.
more use of rail.
That would make sense: are we really seeing plans for enough to make a difference?
Of course not. The rail proponents are their own worst enemy. Passenger rail suffers from two serious problems, neither of them technical, or unsolvable.
The first is that it is almost always built/owned/operated by government, so when the contractors are building it, they quote the "government" price (2-3x normal). The staffing is gov, and overpaid, and over staffed and on and on. Calgary is a notable exception - it is still government, but has not had these excesses - that is one half the reason why it has been so successful
The second problem is that because it is government, the proponents are not paying for it out of their own pockets, so they always want cadillac systems. The politicians get involved, and want it going through their area etc, so the end result is far from the most cost efficient solution. It can't be all things to all people. So you end up with trains that go where they shouldn;t, or stop so many times it is faster to drive, have stations that are architectural wonders instead of just a clean place to get on and off the train, etc.
Again, Calgary is a good example of how to avoid this. It doesn't serve all areas of the city, but is effective within its service areas and justifies its existence - that is the goal.
The opponents can see the excess happening, and rightly, point out that it will cost too much, so they fight it tooth and nail - they see a lot of money going to support someones pet project.
A really good example of how not to do it is the Sonoma-Marin train (SMART) in California. A proposal to use an existing 70mile piece of single track freight line for passenger service. The line was closed for decades, and has just been re-opened for freight. so you have a workable rain line, but the way they want to do the project, to put passenger trains on this line will cost - $590m (plus another $100m(!) to do a bike lane next to it)
They want to have landmark stations, luxury, fast Euro style trains, that can get up to 79mph, even though the distance between most stations is only five miles. The cost of upgrading the track to this speed rating is enormous, and all this to save the 5000 passengers/day about 10 minutes on travel time compared to a train using the existing track speed rating!
It is being paid for a by a 30 yr sales tax on the entire county, so for the proponents, it is indeed not their own money, but a chance to have someone else fund their dream.
I did find a great study on the potential for rail to displace air travel - can't find it now - but the main point was that the shorter air routes (>2-300miles) were the most expensive/lowest load factors for the airlines to operate. Instead of ridiculously expensive high speed trains between the major hubs, it is better to have medium speed trains servicing the major hubs - to displace the short haul flights.
Anyway, rail is a great technical option, but for all these reasons it is not being implemented widely, and, unfortunately, I can't see much changing on this front :-(
It will be substantially quicker, cheaper and more effective to expand both Urban Rail and electrify, expand and moderately speed up Freight Rail (with more passenger service on the tracks) than other alternatives (except bicycling).
There are auxiliary benefits as well.
Trucks would have to buy diesel at 18 cents/gallon to compete with the fuel costs of electrified double stack freight trains. the more we use rail, with appropriate investments, the cheaper it becomes because the marginal costs of extra capacity is lower than the average cost.
TOD provides both a better quality of life, greater health and lower energy consumption (not just oil).
Best Hopes !
Alan
That would make sense: are we really seeing plans for enough to make a difference?
This month, BNSF opened up a second track in Abo Canyon and the Southern Transcon capacity increased from 80 to 100 trains/day to 135 trains/day. A decade ago, capacity was 50 to 60 trains/day and almost 20 mph slower average speed. Two decades ago, double stacking was cleared for that line.
One more double tracking project is under construction on the Southern Transcon and a new swing bridge over the Mississippi is in engineering design (unconfirmed).
BNSF is making $3.5 billion in capital investments this year. Truly not enough (and they lead all RRs) but not nothing either. It is making a cumulative difference.
Hey Nick.
All these thoughtful and measured concepts have shaken my faith in doom. I'm going to keep an eye on you, lest I become hopeful.
Excellent alternative scenario. Good insight and clearly you have been able to take a step back and have a much broader view of history. I reckon your ideas have a high probability of eventual success.
Thanks, Dave
Wow, what great feedback!
You're very welcome - I do this stuff precisely to encourage people, and it's great to hear that it's done that for you.
There's more at my (completely non-commercial) website: http://energyfaq.blogspot.com/
From the abstract of "Evidence of causality between the quantity and quality of energy consumption and economic growth", by Ayres and Warr (2010), Energy, Volume 35, Issue 4, April 2010, Pages 1688-1693:
" The aim of this paper is to re-examine the energy–GDP relationship for the US for the period 1946–2000 by redefining energy in terms of exergy (the amount of energy available for useful work) and the amount of useful work provided from energy inputs. This enables us to examine whether output growth depends on either the quantity of energy supplied and/or the efficiency of energy use. Two multivariate models were estimated involving GDP, capital, labour and the two measures of energy. We find that unidirectional causality runs from either energy measure to GDP. We attribute the causation to both short- and long-run effects in the case of exergy, but only long-run effects in the case of useful work. We find no evidence of causality running from GDP to either energy measure. We infer that output growth does not drive increased energy consumption and to sustain long-term growth it is necessary to either increase energy supplies or increase the efficiency of energy usage. Faced with energy security concerns and the negative externalities of fossil fuel use the latter option is preferred."
More clear than that is impossible.
As for car pooling and similar proposals you were discussing in other posts, this is possible in Europe, Russia, Asia, but not in US: no one will give up having a SUV, pickup and other monster type cars. The average American perfectly agrees with Cheney: "The American way of life is not negotiable" .
In the 50's they were shouting "Better dead than red" but it is still true today: most Americans are ready to go to war with the all world to defend they privileges.
I said" most of the direction of the causal relationship is economic growth causes increases in primary energy consumption. The effect in the other direction does exist, but it's weaker."
Note that I was talking about primary energy. The paper above is talking about exergy and "work", which are very different.
I also said: "Ayres argues that there is a strong causal relationship between exergy (effective application of energy) and economic activity, but that the relationship between primary energy and economic activity is very, very weak."
That's consistent with the article you quoted. Look at the last thing he says: "it is necessary to either increase energy supplies or increase the efficiency of energy usage. Faced with energy security concerns and the negative externalities of fossil fuel use the latter option is preferred.""
In other words, economic growth can come with no increase in primary energy consumption, but just an increase in the efficiency of energy usage.
How could that be clearer?
Finally, I said: "I haven't seen anything that showed that fossil fuels were better or more useful for economic activity than other kinds of energy."
Now, I should have been a bit clearer. Obviously, oil is convenient because it's here, and existing equipment is mostly designed for it - I really meant in the slightly longer term.
On the other hand, there's nothing in Ayre's work that shows a preference for fossil fuels - quite the contrary.
---------------------------------------------------------
car pooling and similar proposals you were discussing in other posts, this is possible in Europe, Russia, Asia, but not in US
Car pooling is currently used by about 10% of US commuters. This is more than mass transit in the US, and comparable to levels of mass transit use in Europe.
I agree that car pooling is inconvenient, and that a lot of people don't want to use it. But, to suggest that it won't get people to work if necessary is highly unrealistic.
Bank crises and sovereign defaults are indeed nothing new, there were nearly 30 cases of hyperinflation in the 20th century alone not to mention numerous other conventional forms of default, but generally they did not occur worldwide in all countries at the same time. In fact the only well documented case of several interconnected countries collapsing en masse that I can think of is the collapse of the Western Roman Empire & I imagine that was a TEOTWAWKI moment for those involved.
Sovereign Defaults and Debt Restructurings: Historical Overview
generally they did not occur worldwide in all countries at the same time.
Take a look at the book, especially during the period right after WWII. It makes the current situation look quite tame.
The SPR release looks like an attempt to preserve the financial industries business in commodities speculation by showing that it can be effectively curbed by government action. The alternative to preserving this free market fiction is to allow the movement towards more regulation to grow in strength.
However, just as the governments of oil producing companies have trended towards exerting more and more sovereign control, so will the oil consuming countries as the oil supplies diminish.
A consequence of a general shortage of liquid fuel supplies, or a severe runup in price, will be the effective nationalization of the liquid fuel industry on a country by country basis. This may not be in the form of an outright takeover of the oil industries capital, but would more likely be effected through regulation, taxation, rationing, and industrial policy direction.
Oil prices will be too important to be left to the finanaciers and speculators in New York and London. In a few years they will be negotiated on a government to government basis between oil producing and oil consuming countries.
This may indeed happen. There is another point related to nationalization. Rockman the other day told the story of how much risk a company takes when evaluating a prospective new field. A country that pools its resources and can make calculated bets on how often to drill can effectively spread the risk. If we don't assume a collective effort (akin to a large group insurance policy), then companies will lose their shirt every once in awhile. Without thinking about how collective insurance, lots of people will continue to believe that it is just a matter of dumb luck, "drill,baby,drill", or engineering talent on whether we will continue to find oil.
The masses of people don't realize that we will eventually run out of pawns willing to risk losing their shirts. The question then is do we start to collectivize and nationalize the efforts, or do we do something like privatize the gains and socialize the losses?
Compare this to the case of the farmer who decides to plant a field in a temperate climate. He invests in seed for the growing season. If the rains come as expected he makes some money. If he hits a drought, then he suffers a loss. Over time a statistical trend sets in and as long as more periods of rain than drought occur, the farmer can continue on. The difference is that oil exploration does not classify as a stationary stochastic process, like the seasonally-adjusted weather is (ignoring fast climate change). Over time, the oil situation can only get worse, and the prospectors are serving as scouts in a game of stratego or pawns in a game of chess, perfectly expendable pieces to evaluate the waters. Countries will likely take over this role, subsidizing all losses, much to the dismay of the tea-partiers. That is the political quandary in all this.
The SPR is just another tool in the nationalist strategy, not accomplishing anything besides trying to control a nearly open-loop pricing mechanism.
I thought that in most countries oil exploration is done by one of a very few large companies owned by the state (Saudi Arabia), closely connected to the state (Russia), or under contract to the state (Nigeria).
The US system, which hypothesizes that the oil in the ground becomes the property of the driller as a potentially outsized windfall rewarding success, is somewhat unusual.
More typically, the undiscovered oil in the ground is deemed to be the property of the state and the risks and rewards are shared between the state and the driller through exploration contracts, royalties, and taxation arrangements.
I believe that the USA will fall in line with other countries, and that will make many of Rockman's harrowing stories of risky investment somewhat moot.
Like the moves with the SPR, these are all moving toward national governing policies.
The US is selling the maximum quanitity of oil allowed under 42 U.S.C. 6241
http://www.gpo.gov/fdsys/pkg/USCODE-2008-title42/html/USCODE-2008-title4...
So it looks like at least one of the parameters of this sale is not a random number.
Rgds
WeekendPeak
It also looks like this procedure can't be repeated more than once, without figuring out a different emergency to assign it to, because of the 60 day limit.
which makes it look even more desperate....
It also implies that the SPR available to commoners is only 727-500 = 227m bbl. My guess is that the remaining 500m bbls is for the military. If that assumption is correct that means that not 30/727= 4% but 30/227 = 7.5% of the actual available SPR was released.
Rgds
WP
30 / 227 = 13.2%
My bad.
Even worse....
Rgds
WP
Surely though we are in a subsection (d) shortage and not a subsection (h) shortage to which your limitation applies?
Subsection (d) states
I don't know under which subsection they are releasing.
googeling as i write this....
Rgds
WeekebdPeak
We may never know the true reason(s) behind this move, but I can't help but think of the article from the WSJ a couple years ago of the once affluent couple who lost everything in the '08 downturn.
But instead of down-scaling their affluent lifestyles to their new economic reality, they just kept up on living the high life, paying for it all by maxing out one after another of their numerous credit cards.
It looks like the SPR may be our last credit card (that is before we start selling all of our farmland to the Chinese).
(Warning--OT political rant follows:
I have no doubt that the Republicans, once they gain full control of the Senate and the White House again, will do a heck of a job for the country, just as they have done with GA.
http://www.desdemonadespair.net/2011/06/crops-rotting-in-georgia-since-i... )
Still at least two credit cards left. They can take everyone's 401K and IRA. They will issue government bonds in there place. They will end social security and medicare/medicaid. Then they will have no more credits cards to play.
Ummm.... That "Georgia - Crops Rotting in Fields" bit is pure right-wing nonsense propaganda. If the workers were being paid a reasonable living wage and given normal workers rights, the crops wouldn't be rotting. Sure, maybe the cost of your veggies in the supermarket would go up by 10% because the price paid to the farmers has to be doubled, but no biggie in the big picture.
I think what you say is true if the wages were raised on a national level. However, GA has chosen to go its own way and is competing on a wider area than just Georgia. I would imagine this is a pretty marginal business and local GA farmers would not be able to pass on costs as they would be outcompeted by out of state farmers.
Then we'll have a bunch of entrepreneurial Georgian farmers released on to the market to do other things. Ain't capitalism grand?
I remember the great engineer shortage. There was a great shortage of engineers willing to work for nothing. But, hey, you know, maybe now that we are all busted down to the new normal...
Maybe they are forward thinking. They see that oil could go to $150 and that was bad the last time it happened. So they intervene not to make oil cheap but to stop a hysterical spike to $150. This is half way rational. But the problem is there is no magic number it is the wearing down caused by high prices that slows and damages the economy. $150 would do it fast. $105 will do it slower but the effect will be the same in the end.
One question I have is what price is their ceiling that they will TRY to protect. They may well be able to protect it until after the November, 2012 election. But do you see them protecting say $105 in 2014? I do not. I expect $130 in 2014.
The timing of an intervention is critical. Had they tried to do this while prices were in an upward frenzy the market would have just rolled over them. Since the market had already topped out the sale of what is a pittance had a substantial impact on prices. It is quite possible that this price move will cause additional longs to liquidate in response to margin calls. It may also have the impact of driving down other commodity prices as investors are forced to cut positions to maintain their position limits versus equity.
The consumes about 18MM barrels. This action has saved the consumer about $90million per day. Even if it has the effect of keeping prices down for 30 days the saving to the consumer will be worth as much as the oil that was sold.
For the moment at least their timing appears to be right on.
I'm wondering if there's a relationship problem between the democrats and the Saudi's? Would happily increase production to help a republican president but a democratic president not so much. Sort of like the pentagon "helping" (ha ha) democratic presidents in the latter half of the 20th century. (Iran helicopter boondoggle, Somalia, etc. etc.) Reasoning carried a lot more weight before the Bin Laden raid, must admit. Perhaps Obama's gotten things a bit under control now, or the pentagon learned a worthwhile lesson under little what's-his-name, Bush's SecDef. Rumsfeld.
Bush's handling of the Iraq war was in retrospect a strike against your theory. The Pentagon was just plain dumb for the initial years of that war. LOL.
On one hand, BP releases its 2011 statistics with the data of 2010 and it comes out that we were producing 82 and consuming 87 Mbpd all along 2010. This means a 5 million bpd gap 6 percent deficit. Considering that total OECD Strategic Petroleum Reserves (SPR) are about 1,500 Mbpd and that most likely the whole world may not have more than 90 days of regular consumption (1/4 of a year) in the SPR tanks and deposits; that is a 25 percent of the regular yearly consumption, the 2010 deficit may have represented about ¼ dilution of the whole SPR.
Now, the announcement that IEA countries will gradually release about 60 million barrels to keep the growth; that is, a fabulous release of 17 hours of world oil consumption already stored in the deposits. Is this what is going to reactivate the world economy, as declared?
And now look at the so called markets: remoras, vamps, parasites and all type of suckers having earnings without physically producing a damn: they have decided to take down prices in $7/barrel in one day (about 6 percent). These are their long term views and behavioural patterns. Is this all what they can do? Then, it is time to burn the so called MARKETS, instead the oil.
Pedro from Madrid
That difference also shows up in the EIA numbers for crude only :
http://imageshack.us/f/684/eiacomp.gif/
Lots of the difference that you see in production vs consumption in this case is caused by different accounting of LPG. I believe that production of LPG from natural gas fields is not counted very accurately in crude accounting and it shows up as almost 2 million barrels/day of mysterious crude+condensate consumption.
No one ever commented on this the last time I brought it up, so it would make for an interesting discussion:
http://www.theoildrum.com/node/7965#comment-813001
But the 5 million gap for all liquids has to build on this somehow with another 3 million to account for.
In the BP data, part of the difference between BP's production and consumption is the fact that BP breaks out Biofuels separately for production, but dumps them in with oil for consumption. That accounts for 1.2 million barrels a day of the difference. A significant part of the remaining difference is likely "refinery expansion". The EIA estimates refinery gain to be 2.25 million barrels a day.
This is a really interesting graph. The crossover point is 1980, which I would pin down as the median date when we effectively instituted conservation measures on the usage of oil. After this point, alternative liquids started to get counted as consumption.
Before that time, lots of oil was essentially wasted. I remember hearing how oil would get used to keep the dust down on parking lots. Perhaps these kinds of uses did not go into the consumption ledger?
Biofuels came along fairly late in the game. Refinery gain seems to come from the expansion that comes with cracking long-chain hydrocarbons, and that comes from refining heavier fuels. So we would expect both of these difference to grow in recent years.
According to EIA, in 2007 daily LPG consumption was 8505, and LPG production was 3644.
I don't think this is refinery gain, because that would put it at over 100%. It's probably something very simple related to accounting.
In comparison motor gasoline consumption was 21646 and production was 21292, which is a much more reasonable refinery gain of 1.6%.
Refinery gain is just an artifact of the decrease in volume when you break up large molecules into smaller ones (and the density decreases) when refining the crude. It is nonsensical to ascribe the gasoline difference to refinery gains. A refinery takes a certain distillation cut (i.e. so-called natural gasoline) and mixes into it the products of e.g. catalytic cracking. But refinery gains refers to the total product volumes output minus the crude volume input.
Handy having a chemist around. Perhaps refinery gains aren't something worth obsessing over. There are clearly other large percentage differences that are more likely related to accounting flaws than to processing stoichiometry.
This whole mess could be avoided if the stats were reported in GJ of energy, rather than a volumetric measure. There is some amount of NG used in refining, for the production of hydrogen for cracking long chains, so the short chains that emerge not only increase in volume, but also energy.
There are also electricity inputs in refining too. the whole process is obviously net energy negative, but it is possible that the liquid energy output is greater than the liquid energy input.
OK, I did this in a real hurry in response to Pedro's comment. We know from BP that production = C+C+NGL. Going back and reading notes on consumption, BP say this:
and this
I'm surprized none of the more consperismy minded types have speculated that this co-ordinated international move to release oil supplies could be a prelude to an attack on Iran
Any thoughts?
When the Saudi rep said please attack Iran do not worry we can make up the 4 million barrels per day. He was egging on war and he knew he was lying about the 4mbpd.
ok I'm on vacation I've got time to develop my own conspiracy theories
The israelis seem to be getting ready
http://www.thejc.com/news/israel-news/50718/israelis-train-attack
Engineering a cause celebre?
http://www.israelnationalnews.com/News/News.aspx/145134
Aircraft carrier is on the way
http://www.almasryalyoum.com/en/node/471103
The George H W Bush replaced the Enterprise in the Indian Ocean. They met in the Strait of Bab el Mandeb. The Enterprise transited the Suez from the Red Sea to the Med.
http://www.lowyinterpreter.org/post/2011/06/24/Did-the-US-just-bomb-Soma...
"The US Navy's State of the Navy report indicates there are three carrier strike groups currently in the Middle East. It is unusual to see multiple aircraft carriers in the area outside periods of major conflict"
The damage done to the US by the wars in Iraq and Afghanistan make a new adventure in Iran highly improbable.
It would serve Israel. I guess it comes down to who pays the congress.
Congress hasn't declared war since 1941. So any initiation of hostilities is up to the Commander in Chief. But after Netanyahu's last visit, his relationship with Obama appears to be rather cool.
Iran announcing a rocket capable of orbit a week or so past may be a tipping factor?
They launched their first satellite in February of 2009.
http://news.bbc.co.uk/2/hi/7866357.stm
They need to rename the "Strategic Petroleum Reserve" (SPR), the "Tactical Petroleum Reserve" since it is, as always, just being used for some meager tactical advantage in the game of Let's Pretend Everything's OK, We Just Have A Small Supply Anomaly. It's like robbing your kid's college fund for an extravagent vacation, after which you have nothing to show for it. A strategic use would involve the owners of the SPR (us) getting something lasting in return for this valuable commodity. For example, if you (the public) will agree to a $2.00 per gallon tax on gasoline, in order to fund a meaningful and significant transition initiative (passenger rail, bicycle infrastructure, etc.) then we will release some fraction of the SPR. Anything else is just squandering a valuable resource for a "pocketfull of mumbles". But what else is new?
"Strategic" my understanding is that it is for war fighting, defense of the homeland. Not for game playing.
So you agree with what he said, as do I. Tactical in political terms means short-term decision making and strategic means long-term. If the use of SPR is transitioning from long-term to short-term maybe the name change makes sense.
If we woke up one day and something happened would there be a release just to keep things BAU?
Would that be homeland or war or a bit of both?
It would certainly be strategic.
My family has taken to calling it the "whiner's entitlement" reserve. Hasn't really caught on though.
CFTC Investigating IEA Oil-Release Leak.
This is not surprising since there was a rumor of a release before the announcement. I know the rumor had an impact on me.
Given that there have been so many countries involved here, keeping this thing completely water tight would be very difficult.
This is the first time I have heard of an OECD or IEA SPR. Is this the reserve formerly known as the USA SPR?
60 million barrels released - 30 million from US emergency stocks, 18 million from European emergency stocks and 12 million from Asian emergency stocks.
I do not believe the decision to withdraw crude from the SPR is based on the status of our economy or the current price of oil. Instead, I believe this unprecedented "coordinated" draw is the result of a very real supply crunch heading our way. Previous posts have noted the IEA strongly suggesting that even in the face of a crashing economy further investment was still needed. I recall one day in November 2009 the IEA begging for more investment and later that day Schlumberger laid off 1,000 workers. Libya is offline. GOM is largely offline. China is imported more oil this month than they did this same month last year.
Bottom line, world inventories are not what they seem to be. This response was for one reason in my mind, a major shortage is on the horizon and there is no other option.
Tass – Perhaps I’m denser today than usual but you’ve lost me. Releasing inventory and reducing oil prices will encourage companies to drill more and thus Schlumberger will hire back those workers? And lower oil prices will encourage China to tie up fewer overseas reserves?
I do get what you say about potential future shortages. But it seems you’re saying that increasing consumption due to lower prices, reducing incentives to develop more oil resources (not that this would change PO significantly IMHO) and allowing the Chinese to tie up more foreign reserves at a cheaper price…all this will help mitigate a future supply crunch? I apologize in advance if I’m misinterpreting your message.
ROCK - If I lost you I take full responsibility for not making my point clear. My point has nothing to do with the price of oil. And yes, more oil on the market will drop the price and increase demand which will actually create more harm than good. And yes, of course Schlumberger will hire back workers as demand climbs.
My concern has been rolling around in my head for the last few years. Keeping a market the size of the world oil market in perfect balance given the extreme collapse of the world economy has always been something that I consider almost impossible. The producers couldn't stop fast enough when the recession hit, hence the collapse in oil prices in 2009 and the explosion in tankers used for storage. The same potential holds true in reverse. If producers failed to ramp up fast enough then the opposite may occur. Picture a train of cars 1000 long full of crude oil. Assume we can see the first few cars but only the IEA can see the end of the train. If the first few cars are full of crude and that's all I can see then in my eyes we are well supplied. But if I had a view of the last few cars and they were completely empty then I would know that we are well supplied today, but when that last car pulls into the station its game over. Drawing from the world SPR may be an attempt to fill those last few cars until the next train comes into view.
In conclusion, over the last few years with production of oil around the world being cut off, reduced, declining and under invested then what are the chances we timed it out perfectly? My guess is that, at minimum, there will be a gap in supplies available regardless of price. Perhaps it is that gap the draw on the SPR is trying to fill.
This draw, while unexpected, fits perfectly into my thought process that if we failed to match demand with supply on the way down, how can we possibly think we matched it perfectly on the way back up.
Tass – Yep….completely misread you. I get your point now and IMHO it’s very valid. I’ve been chasing oil and NG for 36 years and nothing damages the process more than instability. And rising prices can be the worse. The price run up in the late 70’s and the subsequent ramp up by the oil patch followed by the mid 80’s price collapse did more damage the any other sequence in the history of the oil industry. And today we see 100’s of $billions of capex chasing reserves with marginal value, IMHO, and now face the prospect of lower prices. Even though I expect such a reduction to be short lived, in the last couple of days 100’s of $billions in shareholder equity was lost in the oil sector. And a great many of those shareholders are middle income folks with a lot of oil stocks in their retirement accounts.
But there’s an even worse potential from the instability you describe: even more blood swapped for oil.
But isn't this 60,000,000 barrels of oil only an 18 hour supply? And the release is spread out or repeatable only in 60 day intervals. Is it emotional amplification that gives the control gain? Wouldn't rational response set in after just one surprise round of this?
The U.S. SPR can not release oil at a rate of 74 Mb/d. The maximum draw down rate is about 4.4 Mb/d if the taps to every cavern are fully opened simultaneously. Apparently the U.S. government will sell its share to one buyer, but then deliver it over some interval of time which may be between 30 and 60 days.
You have it backwards.
From the link that Gail found above, there is one bid sale and
Eh? That would be a 3 billion dollar purchase for one buyer. It's definitely not all being offered to one buyer.
If the price was right the Chinese would take the whole lot.
That's not going to happen though!
What price will the oil be offered at?
About $113 per barrel - that's the Base Reference Price (BRP) It's based on the price of Louisiana Sweet in the five days before the announcement. Also, as far as I understand, any bid can be rejected without a reason being given.
Your comment is very good and made things clearer to me.
Indeed the collapse, when it occurs, will be global: this response to release oil is a coordinated one by many countries, the risk seems to be recognized as system-wide.
Human nature lies at the bottom of it, of course: who is going to make a transition on a personal level to carrying bundles of firewood or producing something slowly by hand if the next person is still driving his air-conditioned car to his office and "working" at a desk?
Maybe it is because I live in (radioactive!!) Japan I think this way, but people feel such a sense of shame at any possible lowering of their individual status. If you can wear a suit, have nice shoes, live in a tiny city apartment, work by shuffling paper and using a desktop computer, you can hold your head up high. If you drive a truck, deliver things, stock shelves, operate a machine in a factory, or work in a field, then you are basically not "counted" in some way. Most people would really rather die than make the transition to the lower status level.I don't know why that is, I don't think it is psychologically healthy at all.
So any type of desperate moves on the part of governments would be expected. The situation will have to involve, as someone said up-thread, a system-wide shock or a hiatus, with real shortages before people say they will start doing manual labor willingly; then the system for "reading" and recognizing status will change and the comparing oneself to one's neighbor will change to another more healthy scale, maybe one not based on fossil fuel consumption.
If you think that you have it bad in Japan (or that the USA has it bad) with respect to that status thing, be very thankful you don't live in Russia:
[Note: her language gets much bluer from there.]
Then again, extreme deference is not new: Russians used to refer to the Tsar by a word that translates best - and without the slightest trace of sarcasm - into English as "daddy".
The Japanese have had at least one fellow countryman they could emulate:
http://www.onestrawrevolution.net/MasanobuFukuoka.htm
- Resid the Undergrad
Hi Tass,
This is what I have been thinking too. It would nice to have a compilation of all the times when SPR was released in the past as well. I think SPR release is the last strategy to work on the ever tightening convergence of buffer. I wonder if there is a graph of SPR over the years or months across US/World.
This whole issue can be a brand new topic. SPR/growth/history/timings.
Well, this will not encourage additional investment so I see it as a short term palliative which cannot have beneficial long term consequences. On the other hand, there is nothing that will significantly change the future supply picture so I guess they want to party now with reserves (savings account) and hope something turns up.
As I said upthread, it is past time for Obama and other leaders to have a frank and honest conversation with their people. I guess his strategy is to pretend everything is fine through the next election.
We do indeed have a coming major shortage, if not on the near horizon. Using the SPR as an oil field is not a solution. There is no solution that includes the word "supply"
Commercial crude inventories in the US are fine, but the WSJ reported that commercial crude inventories in Europe are at five year lows:
http://online.wsj.com/article/SB1000142405270230333990457640357092900017...
World Oil Reserves Tapped
And a related article:
http://www.investingdaily.com/pf/18805/oil-and-the-strategic-petroleum-r...
Oil and the Strategic Petroleum Reserve: Prices are Headed Higher
I believe that Tasstl is correct. This highly unusual release of oil from the SPR is not a trivial political move or the latest form of quantitative easing. We are about to see the end of the bumpy plateau and the beginning of serious supply shortfalls. Things will definitely get more interesting from here on out.
Yes, Tasstl, I think your theory is the most likely of the many presented in this thread. The IEA's SPR had been unleashed to mitigate a looming shortage this summer.
OK…the oil speculators are about to make a killing. For the record I don’t believe these mythical speculators exist. At least to the degree they influence prices significantly. Others have asked repeated who exactly has all this oil hidden away and where is it…still waiting for the first answer. And please don’t confuse future oil contract speculators with “oil speculators". The futures players are speculating on the future price of billions of bbls of oil that don’t actual exist.
But let’s assume I’m completely wrong. So now the SPR release will significantly lower oil prices (another thought I don’t share). I’ve yet to hear a single person predict the release will produce anything more than a short term drop in oil prices. So here I am, Mr. Big Time Oil Speculator, who takes oil off the market and thus causes prices to rise. Of course, I can’t monetize my ill gotten gains until I sell my horde of oil. Which I might have done to some degree in the recent past when oil as bouncing around $120/bbl. And now, with the aid of the govt’s SPR release, I’ll be able to hoard more oil away at maybe $90/bbl…and maybe less. So when oil prices go back up (unless the govt continually drains the SPR) I’ll make a killing. For folks who buy into the Big Evil Speculator story you have to remember the prime biz plan of such an operation: buy low…sell high. A lot easier to make a profit by tying up $80 oil than $120 oil.
Just a little food for thought while we wait for the first news of the oil exporters dropping their prices. Or reducing their output.
This already has had a deleterous effect on Spain.
The government had put the maximum speed on highways down from 120 Kms/h to 110 Kms/h with some savings and a reduction in accidents and fatalities.
Battered by the polls (for various reasons, like 21% unemployment, 50% unemployment among the young, and the young people demostrating peacefully in the streets) and after losing heavily in the local elections the Minister of Home Affairs, Pedro Rubalcaba (who is a scientist, graduated in Chemistry) ups the speed back again to 120 kms, saying that it was a temporary measure and he'd said he would it up back in the Summer.
Cabinet puts speed limit back up to 120km/h on "cheaper oil"
Back to 120 K
Santaluciae,
Rubalcaba's name is Alfredo, not Pedro.
But the essence of the message are the tribulations of a government grasping at straws.
The pathetic minister, says first that the measure of lowering from 120 to 110 km/h has worked and saved 450 million Euros. The original reason ws to save energy and money. And then he says they will rise up again from 110 to 120 km/h.
That is to say: as the system has worked, we change the system. Pathetic, really pathetic.
The reason argued now is the temporal and speculative plummeting of the oil price in about a 6 percent(the same day they took the decision in the Council of Ministers) does not make any longer necessary to maintain this measure. It seems that the tens of thousands of traffic signals in the roads may change from 110 to 120 and vice versa, depending on the oil stock exchange prices. Intelligent Traffic signals with LED displays and algorithms linked to oil prices.
They are, as all other European and world governments, completely lost.
Waht a shame of government we have!!
It is noteworthy that the IEA did not propose governments to follow its 2005 recommendations
For US readers, 110kph is about 68mph, and 120kph is about 75mph. So even the slower speed is nearly as fast, or indeed faster, than most of the US population is allowed to drive. LOL. And Spain is almost three times as densely populated, and far, far smaller in extent. This must be why I'd hear European visitors commenting during the 55mph (88kph) era on what an idiotic waste of time that limit was in such a big country.
I guess politicians put that law in place so they could do some looting.
The way they can accomplish the looting is obvious from this comment just downthread: http://www.theoildrum.com/node/8069#comment-815401
I'd support an effort to reduce the amplitude of the price swings in the oil market. Nobody is served by high volatility. But such a program would have to be price neutral over the medium term.
What we just witnessed was the beginning of something big. It may yet morph into something more defensible that doesn't look like "burning the furniture". But right now it smells of a desperate attempt at stimulus.
I really REALLY wish that for once the US would behave as though the West were not a dying animal. They are going to turn this easy going Canadian into a doomer if they keep this up.
If I lived in another universe I might support such a thing too. But on this Earth in this universe such a program would needs be run by politicians, and they couldn't be trusted not to loot it... just as they can't be trusted not to loot the SPR or anything else.
The release of 18 hours worth of oil is bizarre. The release is limited by law to 9 hours worth from the U.S. every 60 days. The direct effect can only be emotional. It is a game. Nothing real can come of this.
...Unless there is some brilliant strategy directing this nudge or nudges within just the right delicate timing to make a worthwhile single-shot gain other than game-points.
The West isn't dying so much as it's losing power and control. And they don't like that.
This is a streak that goes back a long time, Western elites like to pretend that they control the planet. It's the reason for colonialism in the past, and the reason why today they flood their countries with immigrants from foreign lands.
Without power and control, the West will undergo an existential crisis worse than the one in the first half of the twentieth century.
Let's hope they have the good sense to avoid war.
"avoid war"! there are only five countries left that they are not at war with Iran, North Korea, Venezuela, China and Russia. China and Russia have nuclear weapons and delivery systems. Iran and North Korea are under the protection of the Shanghai Cooperation Organization (China and Russia) and Venezuela better make good friends with China and/or Russia fast.
Venezuela is working in that with China. No point in going to Russia- they have oil, but China needs it.
http://www.reuters.com/article/2011/06/24/businesspro-us-venezuela-oil-i...
I think the SPR manipulation is a supply shock that will cause the price to go down temporarily, but then it will spike back up on the rebound. This is not quantitatively meaningful but it is interesting to play around with these supply shocks, most easily done by differentiating a bump on a rising perceived supply-shortage curve. The price is just a proxy for a perceived responses to what the actual oil supply shortage is, and that is why it is purely qualitative.
When the market catches up to the shock, it reverses direction. The problem with doing this artificially is that the downward suppression is just that, an artificial effect that masks the real shortage lying underneath it, so when the market equilibrates to the shock and realizes that nothing more is available from the SPR, it will quickly realize what the actual shortage is and thus generate the rebound price increase upwards.
This works both ways for a downward shock, upper figure, and an upward shock, lower figure. I can imagine the feds or IEA doing this as a way to compensate for a price movement that they are worried about. It is really open-loop manipulation and thus really uncontrollable, but placing an upward movement on top of a downward movement could effectively cancel each other out.
Try it yourself, this is a contrived model with a Wolfram Alpha query:
http://www.wolframalpha.com/input/?i=derivative+20*exp%28t%2F10%29-exp%28-5*%28t-5%29^2%29+from+t%3D0+to+t%3D10
This is a very slight perturbation on perceived shortage, less than 5% on the underlying level, but the derivative with respect to time is what causes the large response.
No one can speculate accurately on prices and no model can actually exist because of the nature of game theory. Consider that if people actually had an accurate model for prices, then anyone and everyone would predict the direction of the price increases or decreases. But if everyone placed their bets in the same direction, no one would make any money off of it. Price is actually a meaningless proxy for people to chase. It is actually kind of funny to see how this artificial manipulation is making a mockery out of the supposed "free market". That's why they call it game theory, as price is really all just a game.
Of course, the reality is what the facts are under the ground and we do have good models for oil depletion based on tangible physical principles.
That brings back old memories!
Laplacian
___________________
http://t0.gstatic.com/images?q=tbn:ANd9GcS3BU7HPvith1ILeiZ5C5jm_hQHNNvKP...
Wheeeeeeee!
Was that just chance that the data was truncated at that particular point in time.
It doesn't look so strange if extended for one more day.
Forget WTI. Even The White House said that. Look at Brent or Louisiana Sweet. Anything but landlocked WTI.
Light Louisiana Sweet Spot
The crude from the SPR is offered for sale at $113/barrel.
tow - Intreresting. I'll be selling my next load of LLS in 3 weeks. It will be interesting to see if I get more or less than $106. Maybe I'll get $113 like the feds. Either way it's going to be a fat check.
Life is good. And amusing as I watch folks get so excited about the SPR release.
I'm going to shift directions from the majority of comments a bit and focus on the economic analysis contained in the top-line post. I have a problem with the idea, oft-repeated on TOD, that oil/energy supply and prices are the sole or primary determinant of economic growth and that policies geared towards monetary redistribution rather than fixing the energy supply crisis are misguided.
Don't get me wrong, I think there is a lot of truth to the idea that high energy prices are having a major effect on consumer spending and credit markets and have been and likely will continue to put a damper on economic growth. But most of the analysis here seems to fall into the trap of accepting reverse-redistributive austerity policies that slash social welfare benefits upon which less-fortunate segments of society depend, seeming to accept that such sacrifices are a necessary evil in the face of massive debt and natural resource depletion. This is occurring even as those nearer the top of the economic ladder assert a fundamental right to claim an ever-larger share of what remains of the pie:
http://www.washingtonpost.com/business/economy/with-executive-pay-rich-p...
Remember that we are also living in a world where economic policies in the OECD that began during the Reagan/Thatcher years have now come to fruition and created conditions of economic stratification not seen in the West since the Gilded Age. Perhaps we would do well to remember what our mothers told us, that much is expected from those to whom much is given? Particular weight ought to be given to the question of wealth distribution and growing economic stratification in light of the shirking of responsibility to rectify our ecological crisis by the executive-level decisionmakers who constitute so much of the wealthy classes that have seen the relative benefit from the erosion of the social welfare safety net in favor of lower tax rates and business-friendly policies. My question is, why is every sacrifice so far being asked of those who can least afford it? You cannot effectively address the question of who should bear the burden of economic decline without assessing the relative political clout of different economic classes, and in fact we continue to ignore the lowest-hanging fruit in resolving the OECD debt crisis, which would be to simply raise tax rates on the wealthy back to reasonable levels in order to generate the revenue needed to cushion the blow of social welfare cuts being demanded by those on the political right. You might notice that tax hikes are considered "off the table" in these current discussions by those who represent the interests of the wealthy. Coincidence? I think not. You'd have to have blinders on to miss the point that the right wing is using the economic crisis to advance an agenda that is in no way a solution to its root causes, the same agenda they see as the answer to every problem: cut taxes, cut spending.
I agree that policies working to create long-term solutions that address the energy crisis are needed, although another problem I see here is that the solution is also often not as explicitly stated as the problem, too often resulting in a collapse of pragmatic thinking into doomerism. But there is also a social justice imperative at work here, and it behooves us to address this side of the equation as well. The question of whether the wealthiest among us ought to be asked to give back some of what they have claimed over the past three decades is in fact a moral issue and ought to be treated as such and seen as an essential component of the economic discussion, rather than simply dismissed in the face of underlying energy issues.
There is a tendency here to get tunnel-visioned in economic discussions and latch onto the sole issue of energy, asserting that it must be responsible for all economic woes, and in doing so we may fail to look sufficiently at other, outside factors that play a role, particularly with regard to the stratification responsible for so much of what is happening in the macroeconomic picture. Certainly there is a strong argument to be made that economic growth requires an expanding energy supply, but let's not lose sight of the fact that GDP is only one economic indicator and tells us nothing about relative levels of wealth and poverty that play a much larger role in determining indicators of well-being and median income levels than the total size of the economy.
Anyway, just my $.02 - it's been bothering me a bit, so I wanted to get it out there. Let's not lose sight of the fact that even while everyone else is hurting, large corporations and the wealthiest among us are nevertheless doing better financially than they ever have before. Resource issues may be half the equation, but the other half of our problem results from a concerted and largely successful effort over several decades to advance an irresponsible and morally reprehensible conservative policy agenda. I believe that any effective policy must address both halves and that casting one half or the other aside as irrelevant to the discussion at hand gives a misleading impression that misses the big picture and, even worse, plays directly into the hands of a truly sinister element within our political discourse, that which seeks to advance the interests solely of the wealthy at the expense of everyone else, all while attempting to convince us that it's for our own good. Not buying it.
The rape and pillage by the rich, especially the banksters, of the middle class and poor is well documented and is unceasing. I am a Democrat but freely admit that Obama has been instrumental in this sodomy. His primary achievement, the health care bill, was a gift from the very beginning to the health insurance companies. The bailout of the banksters was hideous and his appointments to financial related positions have been hideous. I don't share the Tea Partier's perspective, but nevertheless the health bill is approaching worse than nothing.
The Republican party is worse, but either way, nothing fundamental will be done to assert the power of the people over the corporations. The system is corrupt through and through but groups like the Tea Party do not know who the enemy is.
None of what you propose will occur, of course, as a very simple function of who is in charge. And those on the right, who are de facto running the country, because of the power of no, believe or pretend to believe that we need even less equality, even lower taxes, and even less regulation because the we have not reached maximum level of rape and pillage possible.
In a rational world, we could make an honest effort to assess reality and come up with policy prescriptions to deal with reality. In the mean time, we will be ruled by those who engage in fantasy economics.
The primary issue is that you believe in redistribution. You cannot even discuss this with the powers that be because they do not believe it is a problem and what we really need is even more inequality. And even when they admit that it is a problem, there solution is more trickle down economics through growth. This growth, according to them, can only occur with a full on laissez faire economy
I agree that GDP is caused by a number of factors, energy being critical but not sufficient.
Wasted is certainly interested in redistribution, but chairity from either side of the government (left or right) is theft and is designed for vote buying, so it does not come from a higher moral plane -- which neither side really represents.
However the two levels of wealth in the country can be traced to many evils, including the failure of our system of education. How can we believe in equal outcomes when we are so different in abilities? And this article explains the nature of the education problem rather well, and comes from a democratic critic (which is also enlightening).
http://www.theatlantic.com/magazine/archive/2011/04/the-failure-of-ameri...
50% of all Americans have below average intelligence. If human worth is based on a person's ability to contribute to a high tech symbolic manipulation economy then 50% of all Americans are worthless. If reproduction rates are lower for highly educated people and higher for others, if immigration is of poor manual laborer than I think America will have more unemployable citizens and illegal aliens as time goes on.
I agree both major parties are missing an important perspective and I am not implying that the Democrats' hands are clean either, although in this case I too happen to find them the lesser of two evils as they are at least willing to speak to the question of distribution. The biggest problems I have with the D's are that I think they are largely complicit with the corporate takeover game and that they seldom raise a finger as ever more barriers to accumulation of wealth by the already-wealthy are eroded. As to one of the commenters below who said redistribution in either case is more geared toward vote-buying than any moral imperative, that may be the case, but I guess the point I wanted to make wasn't even really about party politics at all (although I think it ties in) but more about the types of things we are even willing to consider as legitimate political discourse.
For instance, you'll notice neither party these days ever talks about poverty, although Obama did, I believe, use the word maybe once or twice in some fairly recent speeches. But it's much easier for D's to talk about "working families" and "the middle class", even though both of these terms are very quickly fading in meaning, and I think it's largely because, at least in this country, the poor are a sine qua non in politics. Maybe it's because the Rand followers on the right, led by the Kochs and their ilk, have been largely successful in casting wealth in moral terms, that is to say that those who are wealthy are so because they have earned it, and nobody has any right to take away even a dime of it, never mind paying for all the socialized externalities of their wealth accumulation. Maybe it has something to do too with the history of anti-Communist rhetoric in the West. The moment you start to talk about poverty and the issues that really affect the poor (hunger, homelessness, incarceration, disease, urban decay, etc.) it becomes obvious pretty quickly that these ARE moral issues, and that the only way to really address them is to look at questions of income distribution that are the third rail of our political system.
What boggles my mind in particular is how, in politicians' refusal to tackle distributive questions directly, save for a few courageous souls like Vermont's Sen. Sanders, we really are creating a new underclass, and what is it that we want, exactly, anyway? Do those who are lucky enough to still be able to support themselves and their families really have a desire to see more miserable souls stuck in grinding poverty as they cheerfully continue to drive to work? Are they not even really considering the real-world consequences of these policies? Do they actually believe in the thoroughly discredited ideas of "trickle-down" effects and Reaganomics? These are just my theories, since I don't actually get it at all and can't fathom what they might be thinking. But the really bizarre thing is that conservative economics and austerity policies actually do very little to even benefit the wealthy. Consider what happens when public investment is withdrawn from critical areas like infrastructure or R&D: if the road vanishes, then neither rich nor poor are able to drive on it, and if the public sector doesn't invest in science and technology as it did during the space program and as it should to address energy issues, then no amount of money will be able to buy space-age products nor clean energy technologies: they simply wouldn't exist at all!
(As a sidebar, it is worth noting that the real battle over debt, though, isn't even being fought over these areas, but over the matters of debt and public retirement/healthcare entitlements and over revenue, although if we were actually investing in clean energy and smart transportation infrastructure at a meaningful level, the right wing would probably fight those tooth and nail also.)
As to how to actually solve the problem that neither party is willing to take on the heart of the matter, on either the energy or the stratification side of the equation, I don't really know to do so either. And I do commend TOD and the others who write about energy and resource issues for at the very least drawing attention to that part, raising consciousness and educating folks. I didn't mean for my comment to be seen as taking Euan or the other staff to task for ignoring the issue or for saying it in a way I took issue with, but I did feel compelled to raise the point about stratification given that macroeconomic discussions do take place here from time to time, although at what I find to be a bit of a passing level sometimes. I do think sometimes we tend to focus on energy and natural resources to the exclusion of all other factors, and that can be a bit of a problem. I think the contribution of TOD is tremendous in terms of raising awareness of energy issues and the effects that they can and do have on the larger economic picture, and that mainstream discussions in economic fora such as the major papers of record, IMF/World Bank, and in legislative bodies would benefit tremendously from taking more of this perspective into account.
I also think, however, that it cuts both ways a bit, and sometimes we would benefit to take better note of some of the other discussions that have already taken place with regard to the economy as a whole -- for instance, there's a tendency to discount wholesale certain commentators like Paul Krugman as ignoring the energy question, when in fact I think he and his contemporaries within the economics field have raised some very noteworthy points. Energy prices and supply issues have long been a missing piece in these discussions and could stand greater exposure; a fuller understanding of both sides of the equation is what is really needed if we're going to start having a serious discussion (and yeah, it's quite possible that it's too late already). So maybe the low-hanging fruit here is to find receptive audiences within the media, perhaps with Krugman being an example of someone who would be receptive to such a discussion (he has written about energy issues on multiple occasions in the past and is peak-aware on some level), and to make a really forceful argument, as many times as necessary to get the point across, that we need to deal in a much more serious way with the energy question, but also to do so in a way that doesn't ignore or simply dismiss other parts of the economics equation, as that essentially cedes this ground to those who are currently arguing the most forcefully but in fact have very little in the way of reality-based evidence to back up their demands for fiscal austerity and redistribution from the bottom up.
These are just my thoughts and I'm certainly happy to hear from anyone else who might have any.
Wasted,
It is wise that you see the danger in both parties -- even if you prefer one. Both parties are short term thinkers, and will not develop solutions to many of the problems that concern you.
However, look at the optimistic side (not about energy reserves, but basic freedom). In our lifetimes (at least mine) vast changes in the society have occurred. I remember when TV was not in anyone's living room, nor was air conditioning. Houses in the middle class had one bathroom (At least most had indoor plumbing). Today's poor have all the above and from the prospective of the past would not be considered poor.
Another thing about today's society, with its right wing and all, the social advances of minorities of all stripes have changed. The diversity anywhere you look is amazing, and none of the people in the 1940's would understand any of this today. (At work and around town we are nearly blind to color and sexual orientation -- this was not the case when I was in high school.)
Finally, the poor at the bottom of the heap this year are not the same as the poor at the bottom last year. Why? Because there are very few barriers to anyone who wants to make change happen in their lives.
You believe people are trapped and cannot do anything about their situation when at the same time people are doing things all the time to change their situation. I don't pretend that politicians are making it happen for them -- although there are safety nets and private chairity. But most people who are climbing out of the bottom 20% are doing it themselves, just like the very wealthy who have earned their wealth. OK, we know all the wealthy did not do it on their own, but what of it. None of us are going to change the fact that money ends up making more money.
So relax, try to support people who have a vision of the future where energy is intensely more costly and therefore precious and support the freedom of societies' members (all of them) to invest and direct their personal efforts as they think will best benefit them. Help us solve the crazy ecomonic concern before we default -- and don't make any class bear the burden of solving the problem As I said before, selecting any class and subjecting them to an involuntary tax is theft. Tax everyone and you have fairness. Borrow to spend and you rob your children. Remove subsidies that were bought and paid for by lobbyists. Explain to public employees that the money tree has suffered due to overtaxing the soil in which is is grown. Try to share the pain in much the same way that we would share economic good news. Don't hate every right winger you see on the street.
So now the Republicans want to pretend 30,000,000 barrels is significant:
""This action threatens our ability to respond to a genuine national security crisis and means we must ultimately find the resources to replenish the reserve -- at significant cost to taxpayers," said John Boehner, Republican leader in the House of Representatives."
30,000,000 is some small fraction of the reserves and about 9 hours worth of oil.
http://www.theoildrum.com/node/8060#comment-815011
Twilight on June 23, 2011:
"In Watership Down, the rabbits could not count over 4, so anything over 4 was "a lot". People must just hear "a lot" of oil is being released from the SPR."
What a grand observation!
Both sides of our one party system are gaming us.
Citizen Kang:
http://sclipo.com/videos/view/kang-and-kodos
Don't blame me! I voted for Kodos!
I get it. Members of the opposite party will criticize the incumbent President regardless of what he does. I even agree that SPR release is inappropriate but there is not a chance in hell that he gives a rat's ass whether or not oil is released from the SPR. We could fill the SPR back up with all the golf trips he has taken at lobbyist and taxpayer's expense over the years.
I get it. But could Mr. Boehner, just for once, shut the f**k up. The fact that we pay these people is a criminal..
Other thoughts
http://www.minyanville.com/businessmarkets/articles/International-Energy...
All good reasons, I like best the European connection with Lybia. But I don't much like the government using their power to alter the market. This will not end well.
That's fun!:
"Why the US is Really Releasing Oil Reserves"
"announce that the US and its partners will release 60 million barrels of oil in the next 30 days to offset the disruption of the flow stoppage from Libya."
"As you can see by the chart below (from the Energy Information Administration (EIA), US domestic crude oil stocks have been consistently below historical averages for the past year, well before the shutdown of Libyan oil."
http://image.minyanville.com/assets/FCK_Jan2011/Image/June11/ja6241.jpg
"Wait a minute, this chart’s upside down! It really looks like this:"
http://image.minyanville.com/assets/FCK_Jan2011/Image/June11/ja6242.jpg
"Obviously, the release of an extra million barrels a week when inventory is higher than normal..." (and various political reasons are posited)
"Finally, we have the actual reason that the IEA stated. The loss of Libyan sweet (low sulfur) crude production cannot be made up through increased sour (high sulfur) production elsewhere because European refineries that lost Libyan sweet crude cannot handle sour crude."
"This seems to be true. It also explains why the British and French forces have stepped up the air attacks on Libya to try to force Qaddafi out."
The IEA press release:
http://www.iea.org/press/pressdetail.asp?PRESS_REL_ID=418
"in response to the ongoing disruption of oil supplies from Libya."
O.K. ... But the UK and France are contributing? Sweet or sour oil?:
"US Admin Offl:SPR Release To Address Supply,Not Price Concerns"
http://imarketnews.com/?q=node/32677
"As a result, the U.S. will release 30 million barrels of crude from its Strategic Petroleum Reserve -- mostly light sweet crude. France has announced it will contribute 3.2 million barrels per day, while the UK is contributing some 3 million barrels. "
While France asks to have the new price reflected quickly:
"France Asks Total to Modify Gas Prices Following IEA Decision"
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/06/22/bloomberg137...
And the UK and France send fuel oil to northwest Europe:
"Fuel oil dropped 17 percent to 706,000 tons as cargoes were exported to Singapore, PJK data shows. That’s the lowest level since May 12. Supplies arrived from Brazil, France, Lithuania, Russia and the U.K."
http://www.bloomberg.com/news/2011-06-23/jet-fuel-stockpiles-decrease-in...
Inflation is up in France:
"...contributed to a 13.8 percent jump in the price of oil products in the month" of May, 2011.
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/06/14/bloomberg137...
There is more detail involved...
The thread heading is leading the witness?
Is the action focused on our NATO mercenary proxies? (Boy, will I look foolish for such a statement when the warplanes turn right around and help the Tibetan families and children fend-off their murderous government!... Oh, but they are our most favored trading partner and hold most of our debt... and want the oil, too.)
But the WSJ reports that European commercial crude oil inventories are at five year lows. I think that the IEA is primarily focused on potential problems in the fourth quarter.
These two really should be wearing big red clown noses.
http://www.huffingtonpost.com/2011/06/25/rick-santorum-glenn-beck-global...
The original loss of Libyan oil in February had a meaningful effect on price, as expected. And the release of OECD stocks will also have a meaningful effect on price. One should expect no less. Yes, the points many are rushing to make about scale and proportion are valid: 60 mb is at best 80% of one day's global consumption of crude oil. That particular point is relevant to this action politically speaking, in terms of the aspirations of western leaders to produce desired effects. However, this aspect of scale is not relevant to price--in the near term. You can expect an ongoing, depressing effect on price over the next 30-90 days for obvious and rather classic reasons: an extra 2 mbpd for 30 days does change supply. No one should kid themselves otherwise.
But it's also true that this action is part of the overall panic in OECD, and it proves that OECD governments no longer argue with the basic thesis of oil depletion or oil's central role in industrial economies. Additionally, it shows that Western leadership is no longer capable of facing and solving problems. In the EU, US, and Japan, leadership is willing to expend enormous energy to avoid or engage in any activity that avoids our problems.
See my post: The Dark Side of the OECD Oil Inventory Release: http://gregor.us/policy/the-dark-side-of-the-oecd-oil-inventory-release/
I expect the price of oil to be downwardly pressured for at least 60-90 days. I also expect developing world economies to take advantage of the sale, to fill inventories. I don't see another crash in the oil price however. On balance, the average price of oil in the next 90 days will, imo, at best be 10% lower that the $95.00 price that WTIC was trading at on the day of the IEA announcement. By the time we reach September, I also expect the media--which probably wants to see $75.00 oil--to declare the IEA action a failure.
In a way, this action only strengthens the forecast for a horrendous oil spike in 2012 as it may discourage some development of high-priced, marginal supply. Also, imo, the current trajectory of developing world demand is even higher than the most passionate oil price bulls already imagine. Indeed, I think developing world demand is still in the midst of a new overshoot that will not complete until 2013. In short, this was a huge, huge mistake on the part of OECD leadership--it will mess around with cultural expectations of future oil prices, it will cheapen the resource needlessly for several months, and likely help create an even bigger oil price spike next year. What a waste. What a mess.
G
If Libyan production returns in September, you analysis would be incorrect.
If the U.S. sells none or only a portion of the 30 billion barrels of oil at $112 / barrel, then your analysis would be incorrect.
Did OECD governments ever argue that oil does not have a central role in industrial economies?
Accepting that the war in Libya temporarily removed ~1.4 Mb/d of light sweet crude oil from the world export market, does not require one to stop arguing with oil depletion.
The SPR is one tool that can be used to soften the blow from a temporary disruption in oil supply. Allowing the market to draw down stocks of crude oil or finished products are others. Implementing rationing and policies that increase efficiency are more.
Zero Hedge has an interesting post with links:
http://www.zerohedge.com/article/iea-opec-nash-equilibrium-collapses-197...
At zerohedge, boiltherich observes "I said a few weeks ago they would do something to lower gasoline prices between July 1 and September 30 because that is the period in which they take a snapshot of prices for the CPI... and viola, you have the federal COLA for civil servants, social security recipients, and disabled vets."
Long-John-Silver offers that we should "Party like it's 1789!"
A discussion of woodgas ensues, as well.
But nobody has the inside track as to what the release is about. Nobody believes one word from the government. The playing field is quite level.
Doesn't the CPI exclude food & energy anyway?
No, you're thinking of the "core" rate. The overall CPI, including food and energy, is used for Cost of Living Adjustments.
As others have mentioned this is clearly an attempt to flush out the speculators. From that point of view the timing is good as it comes on top of liquidity being removed from the market as QE2 ends. I have always been very much in doubt as to how much price of oil is set by fundementals and how much the price is driven by liquidity. (Which you could argue is also fundamental!). Anyway, Obama's experiment will at least give us part of the answer over the next couple of weeks: If the current price of oil really is to a large degree due to speculation then the (unexpected) extra oil on the market and the end of QE2 may be enough to bring prices right down to the 70 USD/BBL level. If not: Expect to see prices bounce back up again and stay even higher as the market realises that releasing the extra 60 million bbls had no effect. Will be very interesting to see what actually happens.
Allow me to play devil's advocate on this one (why not, it's Sunday, and I've nothing better to do)
Suppose the administrations/political authorities/etc. of the wealthy nations of the world are using this opportunity to break Iran, and do some serious "put you back in your place" hand slapping on Russia, but don't want to go to war to do it. What we can't do with explosive bombs we can do with the oil bomb. Here's the logical progression:
First: We have to assume the adminstrations of the Oil Consuming Develeped Economies are assuming upcoming recession. The stock markets are dropping, oil prices and commodities prices were already beginning to show slowing rates of increase and or dropping, job creation has stalled. So the pain was already beginning to be felt by the oil producers. If we know we may soon see recession (perhaps serious recession) why not use the strategic reserve in a strategic way?
Second: We have to assume that Saudi Arabia really does have spare production capacity. With Osama Bin Laden now dead, the Saudi's have turned their attention to their old nemesis, Iran, and their longtime cultural enemy, the Shi'ite Muslims.
Third: With Osama gone, the Americans and the Saudi's can play kiss and make up, and are back on the same page. Minor point: The Russians have been less than agreeable to deal with on several fronts, so maybe they need a bit of a lesson about who runs the world (i.e., U.S., Europe, Japan, who even in our weakened state are still stronger in most ways than Russia).
ACTION STEP: Release the petroleum of the strategic reserves of oil consuming nations, just as prices are already falling, just as recession is setting in, and just as KSA (Saudi's) go on a production and export binge (in as much as their supply and production ability will allow it). We could get the scenario we saw in 1982, a complete price collapse, just as the nations of the world came to the end of summer, the peak driving time in most developed nations.
Questions: Who has the testicular fortitude to short oil down to, say, $60 per barrel, on the above premise? (pause for smirks and laughter).
How big of a gift would the above scenario be to China and India, 2 of the fastest growing oil consuming nations in the world (or would the upcming world recession wipe any gains)?
How much damage would the above scenario do to Iran, and could their political leadership survive it?
How much damage would be done to Russia and could their political leadership survive it?
(aside: Saudi Arabia would have to assume it has the financial strenth and the world connections to be able to weather this themselves, and that their world partners would not leave them hanging out for being so agreeable)
Afterword: Most of the developed nations of the world do not like to admit it, but the U.S. is in better position to stand major oil shocks than either Europe or Japan. We are still a major producer (they are not), and we have huge flexibility simply in our logistical structure (we can probably take out 10% to 20% of our consumption without any improvement in technology through tax changes and personal and corporate logistical changes. I personally consume about 10% of the energy I consumed 5 years ago when I registered at The Oil Drum, a decline of 90% purely on relocation and other simple painless decisions. I can now stand a gasoline price of 7 dollars per gallon or more, something I could not have done 5 years ago.
So we help out our suffering allies, Japan and Europe, put some pain on our less than agreeable world competitors (Iran and Russia) and set ourselves up for a greater recovery when we come out of what is an already assured coming recession anyway. Win, win, win situation.
What is the timetable? Obama must hope to weather the upcoming recession (which is a done deal) and be back on the upward turn by his re-election time. Frankly, i don't think he will be lucky on this one, My bet (and it is the way I am betting my money) that we will still be in serious recession for about 2 more years (give or take 6 months), but Obama can hope the Republicans keep making asses of themselves and he could win anyway. It is really the only bet he can place right now. Bet for the recession, and for the longer haul and the recovery afterward (when the effect of greater energy efficiency cars and hybrids will really begin to show in the U.S., Japan and Europe anyway). It's a risky play, but not as risky as it seems at first look. The above scenario is the only way I can find for the release of the SPR to make any sense at all. Otherwise, it is simply a random act of madness.
RC
"Otherwise, it is simply a random act of madness."
It does light-up the "Oil Low" annunciator on the dash. Releasing an emergency reserve to cover a minor supply loss incurred by our European friends says that the minor loss could not be covered any other way; There is no margin remaining.
The Europeans are spending oil in a new way by keeping this modern oil-field production equipment running 24-hours a day:
.............................Pumps.........................................Pipe.......................Gusher!
The war-machine runs on oil. If the 30,000,000 barrels are delivered to it, it keeps running. The money is laundered; no direct transaction occurs. Money can't buy the product at this time, anyway, without making the host populations even more disgruntled. If targeted in this way, 30,000,000 barrels IS a significant number.
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Images:
http://t1.gstatic.com/images?q=tbn:ANd9GcQtB7uZybN5Cm1Ie4azhTQAN5N1uUKux...
http://t1.gstatic.com/images?q=tbn:ANd9GcQ0pEL8E_dqusVnIOSgLJS-JtKjYHNMr...
http://t0.gstatic.com/images?q=tbn:ANd9GcSyPMW5_n1F8p1onpD35lIbxUFAZoC3S...
So, now they have pushed oil down to $100 (or lower, depending on your choice of stat) who is going to want to buy their oil at $112?
...and isn't this just encouraging people to buy more now, maybe even start hoarding...which will then push the price back up really quickly as things get tight again?
Something else.. if this oil has been stored for a while, is it still as good a quality as the stuff already on the market?
Just my uninformed opinion, but I would think the recent storage time is far less than the time it was stored in the ground before it was pumped out the first time...
Oil products, and crude oil is most storage vents to the outside. This reduces the lighter fractions (chemical compounds) in the mix. Add a steady source of oxygen which can oxidize some of the compounds.
The salt domes do not vent or admit a fresh source of oxygen. So the crude oil is stable.
Alan
RBOB is up 1% today. Has the release already done pretty much what it was going to do?
http://www.forbes.com/2011/06/27/strategic-petroleum-reserve.html
"the largest release of crude oil from the federally owned Strategic Petroleum Reserve (SPR) in U.S. history; 30 million barrels over the course of the next 30 days"
"translates into a 16 cent decline in the price of a gallon of gasoline."
"But that assumes that the Saudis and a few other producers reduce output to offset the inventory release, something that they have done historically. If they hold production steady -- as President Obama says they have agreed to do via backchannel negotiations -- then a 60 million barrel release would translate into a 27.8% drop in world crude oil prices ($26.48 off the pre-release announcement price of $95.41) which, in turn, means a 63 cent drop in the price of a gallon of gasoline."
Cato Institute
...So $2/gallon gas
_________________
"30 million barrels of crude released by the president amounts to less than 5% of the volume of crude oil in the SPR." (of sweet crude?)
"less than a single day's worth of global crude oil consumption"
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So the new news is that an agreement supposedly exists that enough major producers will not cut-back on production.
Why?
(After the Bilderburg meeting, Germany is making nice with Greece. Is this another directive?)
________________
Commitments of Traders
http://www.futuresemail.com/cot/cotp1com.htm
SPR release History
http://www.futuresemail.com/cot/cotcom4.gif
http://www.fossil.energy.gov/programs/reserves/spr/History_of_Releases_-...
There was a 30,000,000 barrel exchange in October 2000.
The total sales from 1986 to 2008 is about 60,000,000 barrels.
Notice of Sale:
http://www.fossil.energy.gov/programs/reserves/spr/publications/nos_draw...
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I've put up enough posts with actual, detailed information to know that nothing comes of them. If I mention the differences in bicycle seats for highway touring... The Brooks Team Professional Saddle is incredibly stiff.
http://www.mtbr.com/cat/controls/saddle/brooks/saddle/prd_352800_140crx....
...But this thread is pretty dead.
Some of us are reading, and appreciating good info.
Thanks.
Thank you!
...odd thoughts...
If the SPR oil is priced just at or ahead of the market, at $112, then it sets a limit beyond which it gets bought. It may have its effect without ever being sold. Psychological manipulation...
The silly season in Iowa starts in January, 2012: an electioneering reason to lower gas prices by winter.
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The Shadow knows...
http://www.youtube.com/watch?v=hzbrlSHf5-M
If the SPR oil is priced just at or ahead of the market, at $112, then it sets a limit
Given that 1) oil companies are very reluctant to quickly raise their pricing assumptions for project planning, and 2) there's a limit to the speed with which oil field services can expand, beyond a certain point there's no additional value from a high price signal to supply.
Demand is another story...
On June 1st
Nope, plenty of offers. Oversubscribed, in fact. Silly me.
The bids total 30.64 million barrels of oil, with the
average bid of $107.20 per barrel.
.
COMPANY_ _VOLUME (barrels) _BID ($/barrel)
Valero Energy Corp (VLO.N)_ _6.90 mln _105.62-109.76
Vitol Inc [VITOLV.UL]_ _4.00 mln _108.05
Shell Trading USA (RDSa.L)_ _3.65 mln _105.70-108.88
ConocoPhillips (COP.N)_ _2.10 mln _106.29-107.88
Plains Marketing_ _2.08 mln _106.78-107.78
Hess Corp (HES.N)_ _2.00 mln _105.01-107.54
Marathon (MRO.N)_ _2.00 mln _105.80-107.80
ExxonMobil Corp (XOM.N)_ _1.51 mln _107.34-108.94
JPMorgan (JPM.N)_ _1.50 mln _105.33
Sunoco (SUN.N)_ _1.20 mln _107.08
Trafigura_ _1.10 mln _105.20-107.20
Murphy Oil (MUR.N)_ _500,000 _106.73
BP PLC (BP.L) (BP.N)_ _500,000 _105.04
Barclays (BARC.L)_ _200,000 _104.98
SOURCE: U.S. Energy Department
LINK: r.reuters.com/fux42s
http://uk.reuters.com/article/2011/07/01/usa-spr-oil-idUKN1E7600RX201107...
Robert has a new post on the SPR:
http://www.consumerenergyreport.com/2011/06/26/tapping-the-spr-the-root-...
How much of the SPR is light sweet?
http://www.theoildrum.com/node/8098#comment-816936
Charles Mackay on July 1, 2011:
http://fossil.energy.gov/programs/reserves/spr/spr-facts.html
"Note that only 40% of the SPR is light sweet, so they are using up about 10% right here."